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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 (7384)	5/1/1998 2:17:00 PM
From: Herm	Read Replies (1) \| Respond to of 14162

I have been reviewing should only be executed WHEN XRAY moves up to and beyond the previous high of $35. We are only presenting strategies to study at this point. I'm only pointing out how we are going to take advantage of human nature. Once XRAY reaches and breaks through the $ high it will gap to something new beyond $35. Volume and RSI will pinpoint fairly accurately that pivotal point. Two events coming up are clues to the approx. timing. Something in William O'Neal's CANSLIM must be present in order for the stock price to move. An announcement (earnings), income (dividend). PUTs become cheaper as the stock price moves up. CALLs become more expensive as the stock price moves up. When we write the CCs we are going short and betting that the stock will decline or move sideways and we will walk away with all/ or most of the $ premies. Selling the CALLs at the money or in the money will bring in a fairly large premie percentage wise. Typically, for a mild stock like XRAY 5% to 7% unmargined, 10% to 14% margined (at or in the money strike prices respectively). The PUTs purchased at a stock price peak are dirt cheap. When the stock price reverses and drops those PUTs will appreciate real fast. Ask yourself? If you had a 40% gain in the stock price and the stock makes a new high would you pull some or all your money out? Now, if you could do that and continue to make money while the stock corrects, would you do it? Most likely! Funds managers and the MMs play with those money tools. They will short the stock, load up on PUTs, sell CALLs to preset the stage and set up the dummies. Then, BANG!!!! Large sell blocks are programmed executed and the stock price heads south! The shorted stock become more valuable, the CALLs become worthless and they keep your money, the PUTs become $ golden. Now, as the price drops slow down and the down volume levels off, the MMs and fund managers will start 1. selling lower strike price PUTS, 2. start covering the CALLs at much cheaper prices at a profit, 3. start cashing the PUTs in or exercising them because they are just about to reverse the whole process all over again and shorted stock is covered at a profit! Usually, they load up with the options, force a move in the stock price, and then exercise the options to keep feeding the trend cycle. Heck, there is more profit to be made during those corrections. It's like betting on musical chairs contest and you happen to be the one who pushes the button to make the music stop and go! Now, one fund may not be able to make all the music stop. But, you have to know that they have a secret hand shake or something to know when to simultaniously "pull the plug." In fact, I believe it is Level II price quote feeds that provides the names of the big money on the bid/ask on the Nasdaq. Basically, you are able to see who is doing what like who are the longs vs. who are the shorts.