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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 (7819)	7/3/1998 7:02:00 PM
From: Dnorman	Respond to of 14162

Herm: Never mind that last post, I just went back and reread your post #7788. I think It answered all my questions. The % just gives you a good start on possibly finding potential candidates and looking at the RSI,BB and charts on them. Dennis

To: Dnorman who wrote (7819)	7/4/1998 1:12:00 PM
From: Herm	Read Replies (3) \| Respond to of 14162

Now, you got it Dennis! The high premie % generally means more risk. The variable which really spikes the cost is the stock's historical volatility vs. the implied volatility measurement in the price. Volatility: The propensity of the market price of the underlying security to change in either direction. Here is a simplistic algebra equation on the pricing of an option. A (intrinsic value)+ B (time span) + C (implied volatility) = option % premie. The closer or more in the money the strike price the higher the intrinsic value. If the strike is $10 and the stock price is at $12 there is an intrinsic value of $2.00. More time, more value. Straight forward. It is the implied volatility which is the unknown variable. It can spike up or down ANYTIME! But, with the charts (RSI and BB) we are able to at least make some predictions on the possible value. Therefore, if we find high premies being offered and we look at the charts we can pick and choose the stocks that offer a buying or selling (writing CCs) opportunity. For example, you will always see higher volatility around price reversals, split announcements, trader's bounce, and when the stock pegs the upper or lower BBs and the RSI peaks or bottoms out! If you have two eyes and watch, at least you can score during those events. It's like picking your pitch of the hard ball rather than just swinging at everything! By the way, higher volatility on the charts with Bollinger Bands is represented by wider (larger) distances between the upper and lower bands. In other words, when the bands narrow the volatility is going down and the premies are becoming smaller and smaller percentage wise. When the bands are wider it means higher volatility and higher percentages on the CCs. Now, do you understand that coveredcalls.com is a valuable informational source provided it is used as a starting point. I suggest that everyone closely compare the stocks with the highest % premie with the lowest to see the difference in the price chart patterns. Burn those patterns into your head so it becomes second nature. Also, Investor's Business Daily (IBD)and Barron's has charts every Saturday edition which is good to look at. You will see time after time the same patterns on the gappers. If you are going after them as a trader, then you need to sniff them out. If you are writing CCs and want to protect your backside, then you need to know when to jump into a recovery spread or hold off CCing until the gapper tops out so that you can lock in the HIGH CC premie and have your call buyer(s) eat it on the pullback!