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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: rkf who wrote (7377)	4/30/1998 8:11:00 AM
From: Herm	Read Replies (5) \| Respond to of 14162

Well Kent, The next XRAY dividend payment is scheduled for June 25, 1998 with the record date most likely June 22. The next earnings report is July 20, 1998. With no negative warnings I would venture to say XRAY will move up to test the recent 52-week high of $35 by mid June just before the earnings payout. The funds can boost the undervalued price of the XRAY stock in collaboration with the higher volume buying from "dividend stripers" also know as dividend raiders. That's when funds buy up a stock just before dividend payouts in order to capture that payout. They buy before and dump the stock after the record payout date thus cashing in a small capital appreciation and income event. Of course, they make the rounds from stock to stock, sector to sector. I guess that is what growth and income funds do. So, I laid out one approach in my last post: Message 4245148 If you look at the chart you will notice that last June 1997 XRAY took a small price dip ($4) after the payout. If XRAY makes a new high this time around and the dividend event occurs after that new high, you can bet there will be some profit taking and a price dip. So, you could cash in the stock and wait for XRAY to bottom before buying it back and picking up more shares with the extra profit dollars. Or, you could sell a CC DEEP IN THE MONEY and let your CC buyer eat the drop before you cover real cheap and repeat the process all over again. The XRAY price drop would be absorbed by the CC premies that you pocket. They would be fairly large since the would have very high intrinsic value and volatility factors built into the price of the option. If you really want the maximize that XRAY drop buy a load of real cheap PUTs (as a sideshow) at the new XRAY price high around two strike prices below that high and turbo charge that erosion. The idea here is that you are using the CC premies to pay for the PUTs. If XRAY were to drop as projected and you had the in the money CCs and PUTs in place you would be way ahead in $ when the XRAY dust clears. If it moves sideways or goes up you basically loss the CC premie money and risk being called out! Yep, there are risk and rewards! So, the CC in the money strike price should not be written below your net cost basis (nut). That should limit your loss (if things move against you) to a break even $ in XRAY. The lower your net cost basis the safer the leverage. Summary: Conservative - Let XRAY price reach new high and collect the dividend before dumping the stock. Moderate - Let XRAY price reach new high and collect the dividend before selling an at or in the money round of CCs. Aggressive - Top CC guns should let XRAY price reach new high, collect the dividend before selling in the money round of CCs. Buy cheap PUTs at the new high two strike prices below but above your net cost basis. NEVER go below your adjusted net cost basis.