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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: Dnorman who wrote (7628)	6/12/1998 10:53:00 AM
From: Herm	Read Replies (2) \| Respond to of 14162

Hi Dennis, I would sit tight and let GLBL drop some more before a bounce off the 200-day moving average. That is, if they are lucky! GLBL had a 2-1 split in 1996 and again in 1997. Will GLBL try again in 1998? For sure, more shares outstanding means more investors to please. Have GLBL earnings per share kept up with the outstanding float? GLBL will have to attract (turnover) more investors. How? With an overpriced stock they will have to demonstrate that they invested those dollars wisely by releasing the results. Oil is so cheap right now I don't know how they are going to make money. Earnings have been flat. Next earnings date is August 08, 1998. Try buying some PUTs with GLBL. NASDAQ: (GLBL : $19 1/4) $1,778 million Market Cap at June 12, 1998 Trades at a 76% Premium PE Multiple of 21.0 X, vs. the 12.0 X average multiple at which the Drilling & Marine Supply SubIndustry is priced. To answer your question. A floor trader once told me when they (the market makers) buy PUTs from you, they must sell CALLs on the open market (with the same strike price) to counter their positions. It is the spread (multiplied by hundreds) between the two options (PUTs vs. CALLs) that are eventually closed out and generate their profits to stay in the game. Makes sense? If you sold CALLs and brought PUTs on the same month and strike price and paid zip for commissions, only one option position would be right on expiration day. The MMs can counter anytime before the deadline just like you. In our example, suppose those CALLs would be dropping in price/value (and they used your money to buy their PUTs anyway) those PUTs would be gaining in price/value. Hence, the calls expire worthless and the PUTs are in the money.

To: Dnorman who wrote (7628)	6/12/1998 10:26:00 PM
From: Tom K.	Read Replies (1) \| Respond to of 14162

Dennis, one of the great things about investing is that there is an unlimited variety of perspectives and approaches available (everybody's got an opinion). One of the great things about this forum that Herm has established is that it is a nice place where we can share, learn, and refine our various approaches.. but for this to work, we have to be willing to offer our views, so here's my perspective on your GLBL question... First, understand that my focus is on generating recurring cash flow in a conservative manner. Second, I take your word that GLBL is a stock that you would not mind owning, i.e., it satisfies whatever your criteria is. Since the stock is approximately $20, I'd put aside $1000 for each 100 shares I want to own. I'd be interested in at least 500 shares ($5000 set aside for margin). Then I'd sell 5 July 17.5 PUT's for 9/16 (limit order) to net about $250. This provides cash in one month at a rate that equates to an annual return of 60% on the investment (250/5000 x 100 x 12 months). If the stock is not put to me, then I'd do a similar trade next month and again and again. If it is put to me, then that's what I wanted anyway, and now I'd put it in the safe and start selling calls against it looking for the same return. In either case, I've begun a $250/month cash stream process with GLBL as my machine. As a single trade it doesn't set the world on fire, but after a few of these trades begin to compound regularly, it's a good feeling to have to count the cash. Actual broker margin requirements to do this trade are considerably lower (probably only about $300) and thus would provide an even higher ROI, however, I'm conservative and want to be sure that I don't have to scramble if the stock is put to me... besides, 60% return is above my target range (40%-50%). There is a risk that the machine (GLBL) may decline below what I paid for it.. but I know that risk going in, and besides, I want the stock (you said) and I'm primarily interested in the continual cash generating capability, not the resale value. Hopefully, when I tire of making these returns, GLBL will have held it's value.. but that is clearly the risk and needs to be watched. So there you have another approach to mull on. I'm sure that there are numerous other approaches out there and I certainly could learn more, we just need to hear about them. Tom