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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: Jonathan Thomas who wrote (6609)	1/28/1998 9:08:00 PM
From: Douglas Webb	Read Replies (2) \| Respond to of 14162

I have no problem with long term repairs if you have ideas. I was considering doubling my position or buying another 1000 shares, which would bring my NUT to 7.75. Ah hah! If you're willing to buy another 1000 shares, that'd mean you're willing to pour another $5000+ into the position. Care to roll the dice? If you bought 30 Jul 5 calls @ $1 5/16, and wrote 37 Jul 7.5 calls @ $9/16, your entry cost would be $1856.25 plus commissions. On expiration day in July, this position would be beat pure stock ownership for any stock price between $5.75 and $15.50. Your breakeven point would be at $6.75, and your maximum gain of $2739 would be realized for stock prices over $7.50. That's a 27% gain if FRTE takes off before you can close the position. The drawback is that you will lose the entire $1856 if FRTE is below $5.00 on expiration day. I don't think you'd be able to close the position for a profit (or even a smaller loss) before that. If you'd really like to gamble, you could blow the entire $5000 by buying 70 Jul 5 calls, and writing 77 Jul 7.50 calls, for a net cost of $4856.25. Your breakeven and other price points are the same, but now your maximum gain would be $9739, and your max loss is $4856. If you're called out it would be a 75% gain. If you're not comfortable buying so many options, you could buy the 1000 shares. I get a new net cost of $7.85 if you do this. The spread position would then be to buy 12 Jul 5 calls and write 29 Jul 7.50 calls for a net credit of $56.25. You'll outperform pure ownership from $0 up to $9.25, your breakeven will still be at $6.75, and your maximum gain will be $2461, or 19%. Doug.