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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: VincentTH who wrote (7397)	5/4/1998 6:17:00 PM
From: Herm	Respond to of 14162

Thanks Vincent, I understand the balancing act between the time value premium and the CC strike price. McMillan indicates that the LEAPs keep a significant portion of it's time value until the LEAP crosses over the 50% mark until the LEAP expiration. So, a LEAP one year out would not erode as fast until 6 months into the LEAP. So, doing two or three CC plays while the LEAPs move sideways or moderate upward price moves would rack in some serious premies within the first six months. It's possible to cash in the LEAPs and dump it like a challenger solid rockets boosters for a nice conclusion. As the LEAPs gain in value the CC premies will likewise go up. On the initial leap purchase, the total CC income percentage wise is unreal in real $ numbers! I would venture to say three CC plays would yield an easy 100% in six months time! This approach gives the little investor a shot at big name stocks with otherwise unreachable. How many can afford 500 shares of DIS at $112 pre-split (3-1) price. If you have $50,000 you could control $150,000 worth of value via LEAPs. PS SMOD is starting to make a come back!

To: VincentTH who wrote (7397)	5/10/1998 6:12:00 PM
From: Greg Higgins	Read Replies (1) \| Respond to of 14162

Re: Have you ever experienced being called out of a LEAP/CC spread? Do most of your CCs expire worthless and you get to keep every penny! It's probably a bad idea to let a spread where the long side is a leap get called out. Example: Everyone knows, I suppose, what happened to Citicorp last April. Well, as it happens, I owned LCCAB Citicorp Jan 2000 110 Calls and was short CCIDH April 140s. My unadjusted nut on the 110s was roughly $30 each. I had sold the April 145s for 4 1/4, bought them back for 2 1/4 and then sold the 140s for 5 1/8 on Mar 31. The next week the big news broke and CCI was off and running. At the time, with 10 days left to April expiration, my choices were 1) Let the 140s expire and exercise the 110s 2) Buy back the April 140s and sell longer term 140s 3) Close the position. Choice number one was never really a choice. It didn't make sense. The difference between the strikes was $30 but the difference between the option prices was at least $39. Why give up $9 per share? Choice 2 I fooled with and it turns out that it might have been a better choice now that CCI is back in the 140s again. I rejected this choice because at the time, 140 was so deep in the money that actual time premium was only $1 or 2 for 4 months. That can really screw up a return. Also, with the stock around 170, there were only two option series left with 140 strike prices. Choice 3. I bought back the April 140s for 30 3/8 each (ouch!), but I ended up with a net credit of 39 1/4 after selling the 110s for 69 5/8. This gave me 9 1/4 + 2 + 5 1/8 = 16 3/8 profit for options I had bought at roughly $30 each. Something greater than a 50% return in less than 4 months. All in all, I could have lived nicely just trading CCI calls, but that was not to be. Now just as you can enter a spread using a net debit or net credit order, you can also exit it the same way. My instructions to my broker were to close the position net credit 39 1/4 or better. Lately I've considered the CCI Leaps to be over priced; I'm not recommending them, that's not why I'm telling the story. Remember there is almost always some significant time value on the leaps, and that almost always means you either roll or close the position. If CCI had gone to 148 instead of 180, I would have rolled the position, I wouldn't have hesitated or thought twice. It was only the fact that the short position was so deep in the money that I decided to close it out. Hope this helps.