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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: GROUND ZERO™ who wrote (6314)	1/6/1998 8:15:00 PM
From: Herm	Read Replies (2) \| Respond to of 14162

Hi GZ, Welcome to our forum! You ask some fair questions about CCing. >1) If you like the stock to begin with, why abbreviate profit >potential with a CC? Hummm, I would say that an aggressive CCer would hope to capture additional income from the CC premies and still hold on to the stock. In other words, capture the sideways and downward stock price movements and still manage to bring in a profit. Most premies are good for 6% and up per month. That is about as honest an answer. Also, there is price protection when you CC. That is something a straight stock holder may not have. Besides, I personally enjoy the the action! :-) >2) I notice that the further out in time you go, the greater the >premium on that call. If I were to execute a CC, how far out is the >optimal time period recommended, or does and should the selection >vary? It would vary depending on what your risk/reward level and the technical indicators for the stock. Under normal conditions a stock will roll up and down withing a price range. Using technical indicators like RSI and Bollinger Bands we are able to estimate the range and turning points of the stock price and take advantage of the movements to cash out or jump in. >3) Is just at or out of the money the best choice? Again, it depends on the direction of the stock and the outcome you are trying to obtain. A CCer has the option tools to potentially make more profits. For example, using the technical indicators you may be able to write in the money calls at the right time as the stock starts to pull back. Result? The CCer is able to keep a significant part of the premies and still cover later thus getting ready for the next play. The premies provide cash flow for working the option spreads or lowering your net cost basis! That is just tool. Run a search on this forum for Sneaky Pete! That will post the message on entry techniques and more info. Our summary page for all the major strategies is listed on post #2638. Just enter that number in the upper right hand corner!