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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: Hunt who wrote (6244)	12/30/1997 9:36:00 AM
From: Douglas Webb	Respond to of 14162

While you're considering that idea, you might want to keep in mind that CREAF is going to release an earnings report soon after the January expiration date, and well before the February expiration date. You can buy your calls back now pretty cheap, especially if you got $1.5+ for them, but if you write Feb calls at this point you'll probably give up a few points. Wait and see if CREAF can reach $21 this week; if it's strong when it hits $21, just hold on, and if it's weak when it hits $21, write the Feb 22.5. If you really need the cash, and CREAF doesn't get too close to 21 this week, go ahead and write the Feb 20. You'll almost certainly get called out, so you can lock in a profit of ~$2.35/share. See my new and improved options page at webbindustries.com Doug.

To: Hunt who wrote (6244)	12/30/1997 10:19:00 AM
From: Herm	Read Replies (1) \| Respond to of 14162

Hi Randy, If you sell a CC and the stock price drops enough to capture the bulk (80%+) of the original premie value, you may be better off covering at a mere 1/8 to 1/4 and rolling out to the next month and a few strike prices up or just hold until the price moves up and then write another round of CCs. Here is what goes into my decisions. OVER VIEW OF CREAF CREAF is a gem of a stock with total control of a computer multimedia niche. According to stocksmartpro.com NASDAQ: (CREAF:$20 1/8) $1,763 million Market Cap at December 29, 1997 Trades at a 53% Discount PE Multiple of 7.8 X, vs. the 16.7 X average multiple at which the Retailers of Electronics & Computers SubIndustry is priced. So, you can see it is WAY UNDERVALUED and has plenty of upside potential. In fact, this quarter ending is the BEST quarter for the company and they will release those earnings ($ .78 expected)on Feb. 02, 1998. GROWTH POTENTIAL: Based on the a growth rate of 17.5% x $1.84 FY97 EPS = $32.30 should be the min. fair value for CREAF. In FY98 17.5% x $2.58 proj FY98 EPS = $45.15! And of course, we know that the P/E multiple is less than the industry norm. CREAF is CHEAP and should go up as the profit margins for companies are squeezed in FY98 and the mutual funds go looking for better values! PRICE ACTIONS: CREAF cycled lower in price over the last few weeks. VERTEX INVESTMENT - SHAREHOLDER, sold 170,174 shares @$28 and was reported on 12/02/97 SEC form 144 along with other end of the year normal house cleaning. Analysis consensus is at 1.5 buy and raised earnings est. on 12/15/97 to $2.57 for FY98. CREAF is taking care of business and eating up smaller companies. According IBD, CREAF short interest decreased -22% from November to December 15, 1997 to 437,857 shares shorted or less than one days trading worth of a short squeeze. YOUR POSITION: CREAF has been gaining in price this week and last. ACTION TO TAKE: Rather than a formula I would depend on the chart indicators to tell the story. The 20-day, 50-day and 200-day indicators may provide some clues to overhead resistance levels, bottom support levels, or trader's bounce. If the price is in between or below the major moving averages I would take a look at the Bollinger Bands and RSI indicators. 207.95.154.130 CREAF is midway in the Bollinger Bands and RSI is increasing. So, I would be definately covering in your case! Why? If you have a profit then move on. The CC is turing against you because CREAF is gaining momemtum. The closer we get to earnings release the stronger the price MAY get. Of course, there could be some up/down price movements. If you will have a lost by covering then you have to decide if it better to be called out in January @ 22.5! It all depends how lucky you feel to go ahead and roll up a strike price. The Feb. 22.5 may offset your initial loss and still increase your bottom line profit if you are called out later at 22.5! You did not mentioned what you collected as premies for the Jan. 22.5 Call. The point is that rather than a formula is to pay attention to the RSI and Bollinger Band indicators to avoid being on the wrong side of the price movements. By the way! Why settle for just 22.5 in Feburary when you could get that in January one month sooner if you allow yourself to be called out? There is a very good chance that will happen at this point in time! You still will make a profit and you can jump back into the stock later!