Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study! -- Ignore unavailable to you. Want to Upgrade?

To: Herm who wrote (5714)	10/29/1997 7:40:00 PM
From: DR. BOND	Respond to of 14162

Nice post Herm....But I think VVUS BUSTS THROUGH 30 LIKE A HOT KNIFE THROUGH BUTTER! I probably won't post here much since work, my new wife, and the VVUS SI thread takes all of my time! Good Luck, Dr. Bond

To: Herm who wrote (5714)	10/31/1997 8:13:00 AM
From: Herm	Read Replies (5) \| Respond to of 14162

Well it's Friday Folks! This has been a heck of a week for CCing! The swings have been massive in many cases. If you were alert and able to watch the monitor, it was possible to make 1/2 to 3/4 points overnight from the lows to the highs. I have been studing my trading techniques and asking myself if I can improve some more or imploy other strategies in this jerky enviroment. Clearly, I noticed some interesting points: For example, with VVUS the chart: 1. Set the chart indicators (at stockwizard.com) with Candlesticks, Bollinger Bands at 10 days in chart, RSI above chart, and MACD below chart. 2. The above setting gave a pretty accurate indicator for the bottom support level. For CCers, that's a good tool since you get a better idea of when to cover your CCs and wait for the next round. Also, I am starting to really lean towards adding naked PUTs to CCing! For example, when a stock bottoms an At The Money PUT would bring in a good some of money in premies. If the stock does move up that PUT value will erode quickly. Thus, you add more profit and lower your net cost basis for the stock. Now, what I noticed was the Candlesticks. Take a look at several stocks that have dropped recently and look to see if the Candlestick is filled (solid dark - which means a down day)or open (light color - which means an up day). VVUS clearly produced an open or light color Candlestick and the price reversed. 3. At the same time, the RSI reached a very low reading and the lower Bollinger Band had been touched during the day! I had the BBs set to 10 days because it gave a more accurate picture. 4. I surmised that indeed the above mentioned indicators help a great deal to predict the direction and strenght of stock price movements. I also am thinking that we should not write CCs until the stock price moves to the center of the Bollinger Bands and/or when the RSI is above the 70 reading. That would increase the odds of you not being called out by the options expiration date since the stock is most likely going to pull back. 5. Notice also! When stock prices approach even numbers like $20, $30, etc. the stock pulls back somewhat! That must have something to do with the number of open interest volume around those stock prices. I guess people like to take profits at those numbers. Thus, there is a pull back. That knowledge could be of some value to CCers. 6. If it is possible to predict the tops by reading the RSI and upper Bollinger Bands, then we know when to write At The Money CCs and grab as much premies as possible. Also, we can load up with PUTs (as a sideshow with the premie money if you are an aggressive investor) and follow the stock cycle down. 7. The Bollinger Bands gives a pretty good idea of the range between the high/low price range. That is important if you are on margin. You must be able to handle the % change in your equity to liabilities ratio. Of course, if you are making small hits with the CALLs and PUTs sideshows you have nothing to worry about since you are always increasing your equity and lowering your net cost basis (nut). It is important that you gain confidence in the indicators so that you will step up to the plate and buy more stock to leverage your gains. 8. This seems to work and it makes sense to use your profits from the CALLs and PUTs to buy more stock when ever you can! Reason? There is perhaps less risk in being able to write more CCs and produce more income each month. The more contracts you can write the lower your commissions and the more profit per CC round. Building up cash with sideshows carries more risk and should be done only by those that have a very good working knowledge of the options game and can read chart indicators. That's it for now! Any comments or suggestions are encouraged on CCing! These are only my opinions!