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

To: CrackheadBob who wrote (4994)	6/1/2009 9:05:09 PM
From: wilywilly	Read Replies (1) \| Respond to of 5205

You're doing OK, moving up in strike price every month and making money, or at least breaking even. I wrote CCs on QCOM starting after the DotCom meltdown in 2001 and when the market ramped in 2003 I went so deep under water I didn't emerge until this year. I finally did, and kept all my shares, which I bought in the 1990s so I have a VERY LOW cost basis. I was rolling out a year at a time, and thought I would never see daylight. One good thing about QCOM is that its volatility makes for nice fat premiums, which makes it easier to roll out for a break even/profit. And now that I'm OTM, I'm making a nice income with CCs every month on this holding.

To: CrackheadBob who wrote (4994)	6/2/2009 4:00:35 AM
From: Uncle Frank	Read Replies (2) \| Respond to of 5205

>> On the plus side, this shows how even with the stock price going up, you can gradually increase your break even point with covered calls. Very interesting, Bob. Let's analyze the action based on qcom staying at 44.30 until June expiry. Let's evaluate your action, assuming that qcom will close at today's price of 44.30 on June 19th. Sold the April 37.5 for a $1.50, and bought them back for $3.75. You're in the hole for $2.25. Sold the May 40 for $2.60, and bought them back for $.75. That's a profit of $1.85, leaving you $.40 in the hole. Sold the June 41 for $1.55, and if the stock stays where it is, it'll cost you $3.30 to buy them back on exp day. That will be a loss of $1.75, putting you $2.15 in the hole. Qcom will have increased from 37 to 44.30 while all of this was going on... an increase of $7.40. So despite the cumulative options losses, you'll be $5.25/sh. ahead of the game if you count paper profits in the underlying equity. Sounds good but you've had negative cash flow of $2.15 per share in the process, and there's the possibility that qcom will retrace, wiping out the paper profit. I haven't had good luck rolling up options. My strategy is to let the stock get called, and then wait for a favorable price to re-buy. Wtfdik, but let's see how that scenario plays out. If you don't buy the June 41 calls back, you'll receive 41/sh. and you'll be $1.15 ahead on the cumulative option roll. Your cash flow will be positive again, and you'll have money in your account for a buy back. So what do you think the chances are the stock will see 41 sometime this summer? And keep in mind that it closed at 41.15 on May 22nd...