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

To: Dan Spangenberg who wrote (4430)	7/14/2006 4:03:52 PM
From: Uncle Frank	Read Replies (1) \| Respond to of 5205

>> I think I may like to try some ITM buy/writes with the intent that they do get called. Any direction on good current candidates for this would be much appreciated! I'll analyze some of the stocks listed a few months back, but wondering if there are not some better ones. Covered calls are a conservative income producing strategy for ltb&h practitioners. The buy/write approach is much riskier, since it involves predicting the short term movement of a previously unowned stock, which can be strongly influenced by market conditions. Plain vanilla CCs and the buy/write variant are both considered bullish in nature, and Mr. Market's current mood seems decidedly bearish. I think you've picked a bad time to get your feet wet, but that's jmho. duf

To: Dan Spangenberg who wrote (4430)	7/28/2006 11:12:01 AM
From: Bridge Player	Respond to of 5205

Hi Dan, Your comment about writing covered calls with the intent that the stock be called reminded me of the article at this link that I ran across some time ago. 888options.com The author's basic point is there are many low-risk opportunities for buy-writes as an alternative to high-yield bonds, for income investors. I found the article to be highly interesting.

To: Dan Spangenberg who wrote (4430)	8/8/2006 7:33:04 PM
From: Bridge Player	Read Replies (1) \| Respond to of 5205

Dan, I like Goodyear Tire as a covered call (buy-write) candidate. Closing price on 8/8/2006: $11.67. Closing bid on Oct 2006 10 strike calls: $2.00 (no guarantee on opening bid on Wed. 8/9) If you can do this buy-write on Wednesday 8/9 for a net cost of $9.67, the annualized if-called rate of return (the way I like to compute such a yield) is 15.9%. You may recall from the article at 888options.com that the formula the author uses is Annualized if-called rate of return = (strike price - initial outlay)/initial outlay X (days in year/days until expiration) X 100 Using the formula as written gives (10.00 - 9.67)/9.67 X (365/72) X 100 = 17.3% I like to modify these parameters somewhat to be slightly more conservative and maybe account for a little commission: I use 350 days per year, and add 3 days to the days-until-expiration, to account for the fact that it will be the following Monday after expiration before the funds are actually available to be reinvested. Using these modifications, the formula becomes (10.00 - 9.67)/9.67 X (350/75 X 100 = 15.9% Goodyear Tire sells for a P/S ratio of about .11, the latest quarter was profitable, mean estimate for profits for 2006 is $.88 (wide range of estimates) and for 2007 $1.20, the company has a lot of debt, 52-week high $19.31, low 9.75. I like this trade.