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Technology Stocks : The New QUALCOMM - Coming Into Buy Range -- Ignore unavailable to you. Want to Upgrade?

To: Art Bechhoefer who wrote (7621)	6/22/2011 2:02:26 PM
From: DanD	1 Recommendation Respond to of 9129

I believe what lml and I are talking about are call spreads. A call spread is viewed as a more bullish strategy than covered calls, but less than outright call purchase. I have been doing a modified version of the bull call spread by selling the out of the money calls when the stock seems to peak, or is coming under pressure from outside events. So it is like both a covered call and a call spread. I can then repurchase those calls at a later date or let the spread run to maturity and use the cash generated in the sale to set up a new position. It lets me both hedge my position with an upward bias and take some profits from the original position without having to book the entire profit and pay short term capital gains. It has worked out well with the recent fluctuations in Q. I just recently sold (Q at 57) and rebought (Q at 54) the upper calls. So yes, I took some short term profits, but I sill get to have the profits from the bottom call in Jan 2012 if the stock runs up (I think likely) and those taxes will be long term capital gains. Dan D.

To: Art Bechhoefer who wrote (7621)	6/22/2011 3:57:53 PM
From: lml	1 Recommendation Respond to of 9129

Art, Writing covered calls is a conservative strategy, but belief that it is particularly so if the call expiration is @ least 6 months away belies that hypothesis. It explains your conclusion that covered call writing is not the best candidate for such strategy. Fact 1. QCOM is a volatile stock. As a result, option premiums are going to reflect that volatility. Fact 2. The longer the expiration, the greater the implied volatility, and hence the risk that the option will expire in the money (if your objective is to earn income and maintain your long position as the stock appreciates). Bottom line, the more conservative strategy to generate income is keep the expiration term relatively short, 45-60 days, when the time premium begins to deteriorate and accelerates over the final 30 days to expiration. By the same token, the risk of having the stock assigned (called) is more easily managed. It can be substantially reduced than if one goes out 6 months, while providing ample time to adjust the position should price movement goes against your initial position. As Dan stated, you manage this by entering into roll over spreads to adjust your position, which can either generate income or cost an amount you're willing to absorb to reduce your risk. It's a management tool. Personally, I find going out more than a few months on QCOM somewhat risky. But the key is to MANAGE that risk as well as the risk/return tradeoff by making adjustments to your initial position by rolling into another short call position with a higher or lower exercise price with a later maturity. What I like about writing options is that time is always on you your side. Just gotta figure out how to make it work for you.