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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: Linda Kaplan who wrote (6213)	12/21/1997 12:04:00 AM
From: R. Gordon	Read Replies (1) \| Respond to of 14162

Linda, If you wish to be called out - (not a bad idea in my opinion) it makes sense to write calls at the bottom of the bollinger band. It seems that legging into a more profitable position holds a high degree of risk as the stock could fall from the time you buy it. Once you have gone through one round of CCs, then I think you can better afford to get fancy. I think you may have great timing here. Good luck. Richard

To: Linda Kaplan who wrote (6213)	12/21/1997 1:27:00 AM
From: Douglas Webb	Read Replies (1) \| Respond to of 14162

That's right. When your stocks at at or under the lower bollinger bands, you should be: - Waiting for the recovery, or - Averaging down by buying more shares. If you're not sure that you're near the bottom, don't put a whole lot of money into averaging down. I haven't really had the opportunity yet to develop guidelines for this, but I guess I would only average down if it dropped my net cost below some important level, like an option strike price, or a support/resistance price. Once you're sure you've hit bottom and started to recover, you can collect some more premiums by selling the closest in-the-money puts. Make sure you understand the risks and margin requirements for this, though. If the stock turns around on you fast you can quickly get in over your head. But if you're right about the recovery this is easy money. You can also buy out-of-the-money calls once the recovery starts. You should make a prediction about how high the stock might go, and how long it will take to get there, which you are fairly confident in. Then, you buy a call which will be in-the-money by several points and will be near expiration when you think the stock will peak. Remember that if your prediction is wrong you can lose the entire cost of these options, so don't spend too much on them relative to your confidence in your prediction and your profit if you're right. So, as the stock recovers you'll have long stock and long calls which are appreciating, and short puts which are becomming cheaper. When the stock reaches the upper band, you want to watch other indicators for an overbought condition. That's your signal to write calls on your stock, sell the long calls, and buy back the puts. You can be patient about buying back the puts; watch their ask price, and don't buy unless the ask starts rising again, or you need to avoid being assigned. On the way back down you do everything in reverse. You've written calls on your stock, and you want to buy an out-of-the-money put which will be in-the-money when the stock hits bottom again. Make sure this put is greater than your net cost, in case you need to use it to bail out of your stock. And that's how the roller-coaster works, when it's working well and you're comfortable with all the techniques. Doug.