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: JoAnn McCracken who wrote (6200)	12/19/1997 2:39:00 PM
From: Douglas Webb	Read Replies (3) \| Respond to of 14162

That's easy... The time value will erode to nothing on March 20th. It will start eroding noticably about March 1st-8th. What you're really asking (or should be) is "How long am I probably going to have to wait before I can buy this call back?" That's a tougher question. What Herm normally advises is to sell calls when the stock is on the upper bolinger band and ready to come down. This causes the premium to erode very quickly not because of the passage of time, but because the call becomes further out of the money. By doing a buy-write, you've eliminated this opportunity for yourself. A drop in the stock now would hurt because it would fall below your nut much sooner, and you'll need your cash to cover margin rather than buy back calls you've written. Another problem with your trade was that you've written a fairly long-term call, as covered calls go, and especially for this VVUS. By March, it could be back in the 30+ area, or at least the high teens. Yes, after getting called you'll have gotten a 27% return in three months, but you might miss out on a fair bit more. Since today is the December expiration date, you should have waited until Monday, and written a February call instead of the March call. You can just sit and wait and collect your 27% in March if VVUS recovers by then. If you have money, you might want to invest in something else in the meantime. If VVUS drops enough, and the Mar 12.5 drops too, you might want to buy the calls back if you can cover your commissions without taking a loss. Patience and a weak market will probably oblige you before the year is out. When I first started, I did a few buy-writes right away. I did pretty good too; I was up some 30% within a month. The next round I picked some bad stocks, and quickly lost more than my premiums. After I found this list, I've been doing better. I still lost lots of money recently, but the knowledge and techniques I've gotten here helped me put together a position which will prevent me from getting anymore margin calls while I wait for my main holding (CREAF) to recover. When it does, I'll be well on my way to winning back all my losses. Doug.

To: JoAnn McCracken who wrote (6200)	12/19/1997 4:10:00 PM
From: mc	Respond to of 14162

JoAnn, the time frame you picked is very interesting. I think anyone who tries to guess what VVUS' price will be in March is climbing out on a very shaky limb. In March, a couple of things will be coming a bit clearer: 1. We'll know if the February time line for the new plant was met (my guess, and just a guess, is that it will not be) 2. Viagra's fast-track evaulation must be done in March. The combination of these two things has a potential devastating effect on the stock. If we trade in a range between now and then we could move below your level of protection at 9 13/16 (12 1/8 - 2 5/16). In addition to Doug's reasons for buying back, you may want to consider shortening your time frame for the reasons listed above. Of course, if you think the stock has good downside protection I can not fault you at all for for hoping to get called at 12 1/2. That's a great 3 month return. I always try to remind myself when I get called out of a stock that if I wasn't going to be happy with the return, I shouldn't have entered the position. Greed can easily haze our vision and there is no reason to second guess a stellar 3 month return. Good luck, Gary

To: JoAnn McCracken who wrote (6200)	12/19/1997 4:53:00 PM
From: Herm	Read Replies (2) \| Respond to of 14162

Hi JoAnn, Coming back for more profits are you? Hey, I say you never lose money when you take a profit! $1,100 + $187.50 =$1,287.50 or 21%+ ROI. What ever makes you happy and you sleep at night is ok! Keep an open mind to cover if VVUS price should stall around the $15 price level and gives you an opportunity to buy back your CCs. My feeling is you will be called out before March! You might even want to leverage right now by reinvesting the CC premies to buy another 100 shares on a dip. That way, if VVUS takes off (in late Feb./Mar.) you will have a even better return with the extra 100 VVUS shares. As you get closer to expiration you could write an in the money call for the VVUS 100 share freebie compliments of your CC buyer. Now, that should make you feel warm inside! Your decision is a very conservative approach to making money by CCing. Only you know your risk/reward criteria. Don't let others make that decision for you.