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

To: Dan Duchardt who wrote (3659)	4/13/2002 1:37:26 AM
From: Thomas Tam	Read Replies (2) \| Respond to of 5205

I have thought about this, but holding the puts long would not necessarily result in people holding to expiration. If the stock moves dramatically down, we would probably sell the put and take the gain, again over a short period of time. The mentality would probably be the same that we would hope to lock in profits and when the stocks runs up again we would be puts again to sell on another quick dip. Question is do we buy ITM or OTM puts, as this affects the amount of change with price variation? I am looking more an more at ratio call selling i.e: 2 short calls to every 1 long common. More bang if the price dips and a little leeway if the stock wants to run a little. Thomas

To: Dan Duchardt who wrote (3659)	4/13/2002 10:16:34 AM
From: fmikehugo	Read Replies (1) \| Respond to of 5205

Dan - Re "your core stock has taken a substantial dip" Not necessarily so. The price of the option can be "so low" just through erosion of time value. Several times I've bought back calls near or on expiry when the stock is, say, a quarter of a point below the strike but still shows a healthy appreciation from my basis. Mike Hugo The full quote was "Many times the buy back price is so low that it is pointless to hold the short call any longer, which, as Allen has noted, means your core stock has taken a substantial dip."

To: Dan Duchardt who wrote (3659)	4/13/2002 10:28:23 AM
From: Dominick	Respond to of 5205

Hi Dan: My normal strategy is to find and sell expensive calls whose premiums will be enough to carry down to a support point. I use a portion of the premiums to also buy puts at that support price thereby collaring the trade. If the underlying drops I buy back the calls as low as possible and ride the puts down until I decide to exercise them or sell the puts and write more calls, depending on the stocks behavior. But, I didn't adhere to my plan and now am paying the price for it. I bought PSFT as it broke out for 36.78. It closed near the high on wide price spread and increasing volume indicating a further pop-up the next day. I had to leave early the next morning but expected to be back by 10:00 a.m. which is about the time the market would reverse. When I got back I was 12 points down. The rest is history. It is always wise to keep your risk limited. Dominick