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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: Herm who wrote (7822)	7/4/1998 2:29:00 PM
From: Rob Hodges	Read Replies (1) \| Respond to of 14162

Herm, Once again let me thank you for starting and maintaining, along with the help of many fine contributors, the finest thread in SI. I posted about two months ago that I was going to start writing CC's on RADAF and asked your opinion. Let me tell you where I presently am with this stock. I am long 500 shares at an average price of $19.50. I sold the June 20 calls for 1 3/8 prior to earnings release on June 8th. RADAF announced awesome earnings, but possibly due to a mild warnings statement about Q3 earnings being "flat" the stock has fallen to the high 16, low 17 range (from a high of 22). obviously I was not called out and so last week I sold the Aug 20 calls for 1/2. I could have gotten a better premium from the July or Aug 17.5's but the strike price would have been below my NUT and if I got called out I would have taken a loss (although a small one compared to how far the stock has fallen). Right now my NUT is 18.22 with the stock at 17 and I am short the Aug 20 calls. My question(s) to you. Have I done OK in your opinion? Would you have used a different strategy once the stock fell? I've been reading about recovery strategies on this board. Can you tell me how you would have used them in this specific case? What action would you do now? My opinions about RADAF for the next six months are as follows. Although management warned about "flat" earnings for Q3 compared to Q2, they will still be up about 100% over last year. And Q4, with all the christmas sales should be a killer! Sales of all there products still seem to be brisk. Yearly earnings should be up over 100% compared to last year. Therefore I think the stock should start going up again, but probably not until Sept when the next earnings report is due. This is still two months away, and since there is still the possibility that it will continue to fall in the near term (volume has been very low recently) I wanted to grab some CC premies now, rather than waiting for it to go back up. Once Sept comes around, and if I haven't been called out at 20, I will hopefully be able to write some more, shorter term CC's for higher premies. What do you think? Could you also look at the chart and give me your opinion? Especially about the BB and RSI? Would you be buying some cheap puts right now? THANKS IN ADVANCE FOR YOUR HELP!!! Rob

To: Herm who wrote (7822)	7/5/1998 2:51:00 PM
From: Dnorman	Read Replies (1) \| Respond to of 14162

Herm: If I found a stock I would like to own but I decide to sell naked puts on it. Can I have tghe stock margined if put? Dennis

To: Herm who wrote (7822)	7/6/1998 12:07:00 PM
From: robert weisberg	Read Replies (1) \| Respond to of 14162

I am new to this board and have been reading posts from many others including Herm who seems to know his stuff :). My observations of using covered calls are as follows. I believe there are 3 different reasons/strategies for using them... 1) Selecting stocks that look like quality issues but have good premiums. The basic ides is to not care about getting called out, and making money each month on the premium. 2) Using cc as a way to buy stocks and play some monthly appreciation by selecting issues out of the money and trying to make some money as well as using the premium to lower you cost of the stock. 3) Using cc as an insurance against holdings/and to create monthly cash flow and profits. I cant see any good reasons why somebody with a big stock portfolio not use cc at least as some insurance on drops. You can always avoid getting called and you can can always pick out of the money options. This works well when somebody has some large holdings. Also I did some straight options buys a last year. I was right most of the time but I still lost money. the time factor is so critical. Most of the calls I bought would have worked out if I had a little more time. the same goes with my puts. With covered calls if things dont go your way at least you have the underlying security and you have more chances to sell against them and make some money. If I only knew about covered calls last year I would have made some great $$$. Bottom line is that having the underlying keeps you in the game even if you are wrong. I look at it this way: when you buy an option you have time working against you. If the stock is flat (assuming an in the money play) you may lose it all, if the stock drops you lose, if the stock gains you make some money. 2 out of three possibilities mean a loss. With covered calls you make money if the stock is flat! Right now I am playing TDFX 17.50 has some good premiums. I also like EGRP. Also I have no problem looking for flat stocks to pick up a premium. One last point. There is no faster way to lose money than buying puts and calls at will. At least the cc you have the underlying.