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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 (7888)	7/15/1998 6:51:00 PM
From: Herm	Respond to of 14162

FOOD FOR THOUGHT CCing can be a passive or active investment strategy. It all depends on your risk/reward comfort level. The beauty of trading options is that they do specific things at certain times and you get to control and/or apply the protection/leverage when needed. The example I'm using at this point is BTGC because it real money! My money! What I'm now covering is for those individuals that have CCing experience and wish to become a more aggressive CCer. It is not for everyone! Novices all have to start somewhere and eventually they may wish to select more option plays than straight conservative CCing. Before I begin I have a clear picture in my head of what I'm trying to do and I will execute those things when the situation fits exactly the plan! I'm not chasing the opportunities. Rather, I'm digging into the option tool shed and pulling out the right tool(s) to put to work. SIDE NOTES I guess Doug's feeling a little better this week with BTGC in the $8.00 range, right Doug? He has been quiet and maybe biting his lip when BTGC bottomed at $6.00. Hang in there good man! :-) WHAT'S THE STORY? I noticed as few positive news items for BTGC today. First, one of the CEOs exercised his rights to buy 30,000 shares at $3.00 in June 1998. No indication that he sold any of the shares. Second, BTGC listed as one of fast 50 growth companies in New Jersey as a firm. State promo can't hurt! Third, BTGC had a 50%+ increase trading volume day today and finally closed above it's 50-day exponential moving average. Fourth, today marked the sixth straight up trading day in a roll since the 52-week low $6.00 bottom. Finally, BTGC surpassed it's upper Bollinger Band and RSI is approaching 60+. This Friday is options July expiration. Without strong news BTGC is most likely going to be choppy price wise. I would not be surprised to see a fall back to the $7.00+ level for the next week on profit taking. The overhead resistance is around $8.00 to $9.00 and not too many stocks bounce off (in the absence of new eps surprises) the 52-week low without moving sideways. WHAT'S THE GAME PLAN? I depend a great deal on the stock's fundamentals, company news items, and technical charts (BB and RSI indicators). I sold 7 CCs contracts today for the Jan. 7 1/2s @ 1.75(22% unmargined, 44% margined) or $1,225.00 in my account. Reasons? For me, even if called out my net cost basis would be below the strike price! In the meantime, for step #1 I have working capital to leverage/protect my position. I have sold one round of BTGC CCs and covered my position @ $7.00 thus lowering my net cost basis some. Now, I looking for my next opportunity. So, I have my poor call buyer's premie $ in my account to use and/or earn interest or reduce portfolio margin interest! Folks, I'm not passive! I'm not going to wait until Jan. 1999 to be called out of BTGC and earn only 22% unmargined. Some people would be happy and that's fine. I rather try to earn 22% per month! I have a trip planned for New Orleans in December 1998 and I need some sightseeing/party money! That's my motive. Let Mr. Nasdaq pay for it! Let's get back to work! So, I have the CC premie dollars to carry out the next move. I am looking closely at the BTGC AUG 7.5s PUTs @ 1/4 to 3/8s to buy. If BTGC price peaks out (upper BB higher price reading while RSI is dropping) paying that little will not be difficult. I'm looking at putting at risk $375 for that scenario. Assuming, If/when BTGC then tumbles to $7.00+ those PUTs will appreciate fast to 5/8s to 3/4s. When you load up with 15 to 20 of those cheap darling PUTs you can make some fast and steady small kahunas with those rapid option price increments. The trick is knowing when to get ready and when to actually act. If you can predict the conditions needed for those events you are well on your way to repeat the process over and over again on any stock. The charts tell most of the story like an xray picture. Once that event (price drop/the pull back) I can then cash in the inflated PUTs and consider to cover my active BTGC CCs for less than I paid. Afterall, while only earn $1,200+ dollars between now and Jan. when I can milk those price girations for more premies. So, in $$ came CC premies @ $1.75 for the BTGC CCs and I may be able to cover the CCs at $1.25. That's a 1/2 ($350.00) point under the belt on the BTGC CCs I looking for and perhaps another 5/8s profit x 15 PUTs = $937.50 + $350 = $1,287.50 profit. Since, I have been watching options pricing for so long (and learned a great deal from the product OptionWizard Excel Template)I can fairly gauge the fair option price and factor in the volatility value. I program the computer with my online brokerage to execute at a specific buy/sell limit price and I now don't have to live in front of the screen to make the buck. There is nothing like hearing the new email chimes on the background when the orders are executed and I get feedback on the confirmation. :-) Here is the chart below to take a look at the indicators BB and RSI. bigcharts.com. Keep in mind, everything I just mentioned above is right now in the process of taking place right. I sold the CCs and I'm poised to execute the purchase of the BTGC PUTs when the price peaks and appears to be dropping! Clues? Big market opening price jumps on low volume. Sucker's Punch! This is being done as a learning experience for this forum. Hey, I could be dead wrong! Even so, you can learn something by reviewing the clues mentioned above and seeing what happens! Wishing you all, the Best of good buys!

To: Herm who wrote (7888)	7/21/1998 6:18:00 PM
From: Herm	Read Replies (4) \| Respond to of 14162

Hi Doug and Everybody! CASE STUDY - BTGC: Well, BTGC is back on course and following the Bollinger Bands and Relative Strength Indicators (RSI). You don't have to be a rocket scientist to see that both the RSI and BB are getting narrower. Meaning? Less volatility! The lower band is leveling off for sideways price motion like up and down prices during the day. Sort of a tug of war between the shorts and longs. The BTGC RSI is once again dropping below the 50 marker. Show me a drop below -50 and I will show you lower prices. Reason? Lack of real entry by new buyers. The volume the last two days has not been great considering the good news about FDA approval this week. Possible bottom? Without news look for $6.75 and an increase of more than 25% in trading volume before reversal cycle begins. Cover your CCs at that point, cover your shorts, cash in puts. REVIEW OF THE CCing PROCESS: Some basic concept around How to W.I.N. When Writing Covered Calls! W=withdraws I=increases N=neutral 1. W - When the price is peaking (price touches upper BB and high RSI) and on the verge of (W)ITHDRAWING: a. Sell CCs at or in the money! (Bread and Butter) b. Buy cheap PUTs and/or short the stock! (sideshow) c. Cash in long calls! (sideshow) 2. I - When the price is bottoming (price touches lower BB and low RSI) and on the verge of recovery and the price is (I)ncreasing: a. Cover your CCs! (Bread and Butter) b. Buy long calls!(sideshow) c. Sell in the money PUTs! (sideshow) d. Buy cheap warrants if offered (sideshow) Warrants over $5.00 can be purchased on margin! 3. N - When the price is moving sideways, do nothing but watch! a. Watch the upward/down slope of RSI! Hint - RSI will give you a small lead in the direction of the stock price. b. Watch the earnings dates, options expiration dates, and the closest strike price. Note - Most MM shakeouts come the week before options expiration week. c. Watch for split announcements or mergers. SUMMARY: Sell (write) CALLs - Buy PUTs Buy CALLs - Sell (write)PUTs