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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Jan Crawley who wrote (61569)	3/6/2002 3:18:57 PM
From: Jacob Snyder	Read Replies (2) \| Respond to of 70976

Thanks. I may try that, as an alternative to simply selling. I think I'll wait a few days, and see if we get above 50. Does this count as "effectively closing my position", for tax purposes?

To: Jan Crawley who wrote (61569)	3/6/2002 7:04:00 PM
From: Jacob Snyder	Read Replies (2) \| Respond to of 70976

Second thoughts on covered calls: I just reviewed my trading in TXN and AMAT, since late 2000 (when I began range-trading). Those are the two I've most frequently range-traded. I added up, roughly, how much I would have "harvested" if I had sold CCs on TXN every time it hit the 38-40 area (instead of selling the stock). Made some guesses and approximations, assumed I sold the calls 3 months out, and assumed they all expired worthless. I'm pretty sure I got it ballpark right. I compared it to what I actually did, which was to sell the stock, and wait to buy back in the 26-31 area. Did this 9 times, in the last 15 months; not all for that entire range. Added up, I made a lot more (over twice as much) as if I had sold covered calls. Did the same calculation with AMAT, just for 2002 trades (6 of them so far, all profitable). Harder to make that comparison, as I was doing more frequent (but smaller stock move) trades. But, it still looks to me like I come out ahead, doing it the way I've been doing it. Not sure if this is an apples-to-apples comparison. I'm not sure what the relative amount of risk is, for those two strategies. So.....I've got to think about this some more. Tentatively, I think it would be best for me to sell CCs against stock that: 1. I want to hold long term, but I wouldn't mind getting called away if it runs higher. That is, sell at-the-money CCs when the stock is at a price where I am seriously worried about valuation. 2. is volatile (= time premium is a high % of the underlying stock price) 3. I think has gotten ahead of itself, and/or looks to be range-bound for a while AMAT at 50 looks like a good fit. Then again, if I sell at 50 and buy at 40, that's a 25% gain, which is more than I'd make selling a 4-month-out covered call that expired worthless. CSCO as well, looks like a good candidate for this, next time it bumps up to 20. Then again, buying at 16 and selling at 20 is also a 25% return. Hhhmmmm (=sound of me, musing and undecided). Either strategy only works as long as the stocks remain rangebound. Which they have, for so long it's getting hard to remember when stocks went up and stayed up.