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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: Greg Higgins who wrote (6524)	1/23/1998 1:13:00 AM
From: Greg Higgins	Read Replies (1) \| Respond to of 14162

Rob J (Techinvest) writes: My net on ASYT is 31$ and I sold the 22.5 feb when the stock was around 20 a few weeks ago, now record earnings come in and the price pops to 26+, if I let it get called I lose 8 1/2 per share.What do you think would be the best way out of this situation? You don't say whether this is net 31 before or after you account for the February write, I'm assuming after. If you're right and the stock is going to pop, you need to decide what your tolerance for pain is. If you were to buy the options back tomorrow, you'll pay 4 5/8. If you think the stock is going to stay above 26 for the next four weeks, you should buy back the position. I wouldn't quibble about 1/8 here or there. Get out. If you think there's a possibility the stock will drop below 26 in the next few weeks, you should stick it out, your buy back will be cheaper. There are March 22.5s, Jun 22.5s and Sep 22.5s, you you've got at least 3 chances of rolling without a loss, and you may get a few more. Each of those should be good for something. You can also consider rolling diagonally in the future too. So, we need to deal with the big fear that you get called out. I consider it unlikely, but if it really worries you, buy some Feb or Mar 22.5 or 25 calls. If you're short 10 calls, buy 20 if you can. That way you profit from the stock movement you see as most likely. Since you think the stock is going to pop big, buy some Mar 30 calls. You'll get an excellent return if you're right. Generate some cash, sell some 25 puts. Heck, sell the Mar 30 put if you're that sure it's going to pop. I don't know how many calls you're short, but if it's more than a few, mix it up. Close out some of the position at a loss, protect the rest, average down by buying additional 25 and 30 calls. Each of these ideas contributes something. You need to sit down and figure out exact costs, and what strategies you can afford.