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Strategies & Market Trends : The Covered Calls for Dummies Thread -- Ignore unavailable to you. Want to Upgrade?

To: Lonnie who wrote (3143)	12/17/2001 5:56:10 PM
From: Victoria Walley	Respond to of 5205

CBOE has a weekly newsletter and discusses a new strategy each week. Let me see if this link works: cboe.com Lots of different ideas there! There is no right or wrong answer, but if I think a stock has gone up too far too fast and looks like it is running out of steam, I would likely sell the ATM or first ITM strike, maybe 1-3 months out. You will have the option quickest to lose value if you are correct and the stock pulls back. There is not a lot of downside protection to doing this. Plus, you must either be prepared to part with the stock at expiration or quickly repair or exit if you guess wrong and the stock doesn't pull back. I have DELL Dec 27.50 CCs on the line right now, I never repaired when they became ITM (they were slightly OTM when I sold) a few weeks ago but so far that patience has paid off. I'll be happy to let the shares go but I could get lucky on this one. Time decay will work to my advantage until Friday and that's the side of the equation I like to be on. Recent volatility has kept the premiums plump as well. Another strategy would be to sell a way the heck OTM call 6-9+ months out. I often do this on my more boring CC plays, especially those that pay dividends. There is very little downside protection, just a little added income. But you don't have to watch every day and fret, either. Want to protect your profit? Buy puts. Think of it as insurance. There are a few ideas...

To: Lonnie who wrote (3143)	12/17/2001 9:48:35 PM
From: BDR	Read Replies (1) \| Respond to of 5205

Victoria is right, there is no right or wrong answer. It might make a difference which specific stocks are in question and whether they are in taxable accounts or not. But take Dell for example. Say you had bought at 18 in September and now it is at 28. Do you expect a quick fall back in a few months or a slow decay over the next year? You would tailor the options to match, though, as Victoria points out, near term calls don't offer much protection in the event of a large drop. You could sell Jan '03 LEAPS calls, strike price 27.5, for $6.60. That would provide you with protection for about half the gain and still some upside if it continues to rise by a year from now. Or, if you are really paranoid about a sustained decline, you could sell the '03 15s for $14.60. Remember that you can defer recognition of capital gains with ITM options or LEAPS but you cannot convert short term gains to long term gains. Feb 30 Puts at $3.20 would allow you to keep most of your gain in the event of a decline between now and mid February while allowing you to keep all but $3.20 of any continued rise in price. Remember, as a covered call dummy, you are smart as everyone else here so give it your best shot.