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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: tiloup who wrote (6515)	1/21/1998 10:31:00 PM
From: Greg Higgins	Read Replies (1) \| Respond to of 14162

Norman Damiani writes: On tuesday I decided to write the DEC feb 40 calls ... since the stock rose $4.5 for no apparent reason. .. Is there an optimal time to roll over? First off, don't panic! The stock pays no dividends so you have little chance of being assigned early. If the bid collapses to (stock - call), or less, then you need to act quickly. The odds are significantly in your favor, though, that nothing will happen before expiration. Three things could happen: 1) The stock stays the same. In this event the I think you are best waiting until expiration day to get the maximum amount of time decay and to pay the least for the rollover. 2) The stock could go down. No problem here. If the stock goes down, you're better off waiting until the day before expiration again. Hopefully it will go down to the point where you show a profit. If you see a profit, and you're uncomfortable with the stock, take the profit. 3) The stock could rise. If the stock rises and you've traded, the new month will be rising too, and you'll not have received much for your calls. I can't see any benefit to trading early and you might lose an opportunity to turn a losing proposition into a winning one. All in all, I say wait until you either see a profit, see parity, or you must act due to expiration.

To: tiloup who wrote (6515)	1/22/1998 8:46:00 AM
From: Herm	Respond to of 14162

Hi Norm, After the initial entry into a new stock position, rolling over to the next higher strike price for me has been the most $ painfull (ie VVUS) and exposure to the most downside risk! You really NEVER know if the stock will pull back just when you cover and try to roll over. Here are some general considerations: 1. Is the stock approaching an even whole number in price? Example, your DEC at $40. I have read and noticed that stocks have a resistance at those numbers. Ex. $10, $20, $30, $40 etc. because of the number of option contracts and people cashing out at those dollar markers. So, watch if DEC moves back and forth at $40. The time erosion will start to tick away and lower the cost to those options. Perhaps, this is why we need the technical indicators (RSI and BB) to guide us in the decision making process. Doug's new chart might be another tool. 2. Since, you now have the premies in your account you could turn around and buy 5 DEC calls at or in the money as a sideshow. I would rather do that because if DEC shoots up your sideshow calls will become more valuable and you can either: a. exercise them in a profitable position ready to write CCs. Considering, the fact that you will be called out of the original DEC shares anyway, it is a MUCH MORE conservative approach for keeping up with the stock upward price movement and locking in the profits from the CC premies. b. sell the DEC sideshow Calls and allow yourself to be called out! You can do both A or B on the last day before expiration. The point is that you will still be in control of your risk and in a profitable position. Your downside risk does not start until you eat up the value of the sideshow calls which you paid for from the CC premies. Sure, your net cost basis will shift up and down at times.