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

To: Jess Beltz who wrote (5916)	11/20/1997 8:37:00 AM
From: Herm	Read Replies (3) \| Respond to of 14162

Welcome Jess, You have pointed out some important and valid considerations for covered call writing. I would temper your summation (for those readers who have a lower risk/reward criteria). Provided you have a good understanding of the dynamics of covered calling and are willing to: 1. ALWAYS maintain an accurate record of your net cost basis (nut). You can obtain a free Excel spreedsheet from Doug's site at webbindustries.com. Your task will be to keep reducing your net cost basis below the current price of the stock. In essence, that means more profits in your account. The strike prices of your CCs will depend on your nut. The lower your nuts the more risk/reward you can take on. 2. You should cover (dippity do) your CCs when the current premie drops significantly and you can lock in the majority of the original premie. 3. You must keep an eye on the charts movements with particular focus on the RSI and Bollinger Bands as you timing mechanism. When a touch of the upper BBs and RSI readings above 70 is reached it will signal the green flag to write (sell) at the money CCs opportunities. Also, buying PUTs at that point as a side show will enhance the profits on the stock pull back. 4. When a touch of the lower BBs and RSI readings below 30 is reached it will signal covering CCs positions and perhaps the buying of Calls as a side show for enhanced profits. Advanced option traders can also write naked PUTs at that point as the stock rises or buy more shares to average down your net cost basis. The more times you keep the PUTs premies the cheaper your nut will be if they "put it to you!" Of course, at that point you would average in the stock with the rest of your net cost basis and begin writing CCs with the new shares! 5. The careful use of margin will SIGNIFICALLY enhance your profits when you correctly use the above mentioned techniques. NOW HERE IS THE STORY! You need to find a stock that matches your skill level. Doug's % turnover of float (TRO) information will give you the best indicator for determining between a fast CC bronco and a slow and steady CC work horse! A TRO% of less than 30 days is subjected to larger price swings up and down. Yes, the premies are higher because of the higher risk! A TRO of 30 to 60 days is the middle of the road. A TRO of over 60 is a mild CC stock. Most of your DOW big caps will fall in that category. The technology section will most likely fall in the Jess, why don't you throw out a few names and check out the charts and TRO. I can comment from that point. It is more important that you develop an eye for stocks with your name written on it! Here is a FREE site where you may wish to begin your search. coveredcalls.com