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Strategies & Market Trends : Calls and Puts for Income -- Ignore unavailable to you. Want to Upgrade?

To: Uncle Frank who wrote (176)	4/14/2007 11:50:59 AM
From: rkf	Respond to of 5891

I'd be curious to know if Lawrence McMillan - the godfather of the covered call - has ever given his "personal preference" in this area? That is, writing ITM cc's, or out of the money with assumption of stock appreciation? Kent

To: Uncle Frank who wrote (176)	4/14/2007 1:24:53 PM
From: Jerome	Read Replies (2) \| Respond to of 5891

Uncle Frank, its about time you visited here. Your input has always been first rate. "since you're writing out of the money strike prices, the premiums are quite small, << Actually the premiums can be generous. QCOM at 42.55 will net about 2.05 for the May 42.5's . I like to see some appreciation on both the purchase of the stock as well as a decent call premium. My ideal would be a 3% gain from the stock strike price and another 3% gain on the call premium. CSCO will come very close to that right now.The stock is at 26.68 and the May 27.5's are worth .70/.75. I think that a person does covered call writes from a number of different approaches. Some times I have spare cash and I just buy/write an at the money call to generate income. Other times I look for possible appreciation and covered call premium. Most of all I look for a safe position. (judgement call)

To: Uncle Frank who wrote (176)	4/16/2007 7:40:27 AM
From: Jerome	Read Replies (1) \| Respond to of 5891

Hey Uncle...>>>In your version, since you're writing out of the money strike prices,<<< That's correct and one of the reasons for this is that I can re-use the same stock on consecutive months. Example QCOM it closed at 42.55, and if you bought it at that price and got called out at the 42.50 strike you would have a loss (a very small one) on the stock and a gain on the covered call. That would trigger a wash sale rule if you tried to buy it back within 30 days and use it again. My plan here would be to buy QCOM about 42.30 and then write the call at the 42.50 strike. If a call out came then I could just buy it back again on the Monday after expiration. without concern about the wash sale rule. QCOM is an excellent cc write and I would plan to use it as a monthly income generator.