Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study! -- Ignore unavailable to you. Want to Upgrade?

To: Mike Fredericks who wrote (7932)	7/23/1998 9:52:00 AM
From: Douglas Webb	Respond to of 14162

So what do you do when stock hits bottom BB but RSI is still sloped downward? Wait for stock to start to slope upwards again before thinking about buying back? Generally, yes. Remember, the BB is a trailing indicator (it's based on the past 20 days, generally) which means that the stock price can hit it and pass it before the band has a chance to react. On the chart, you can see when this occured in the past, because it looks like the price is riding or pushing the band down. (It happens on the upside too.) You must be patient; if RSI is still dropping, the band will probably drop as well, along with the stock price. The other factor in when to buy back is how much of the premium you get to keep. Generally you want to keep at least half of your premium, but there may be times when you're willing to give up more than that. In your case, you sold the Aug calls at $1.25, and can buy them back now for 1/4. They're not going to get much cheaper than that, and you're keeping most of the premium, so go ahead and buy them back. There's no need to wait until August for them to expire. In the mean time, you can write more calls further out and at a lower strike (but not below your net cost!) or you can wait for the stock to recover, perhaps buying some cheap calls on the side for the ride up. Since you say the drop was caused by a lawsuit, you might want to be careful about predicting a price recovery. Frivolous or not, litigation can be expensive. Unless you really expect this problem to go away soon, you might want to keep writing at-the-money calls until the stock gets called away. Doug.

To: Mike Fredericks who wrote (7932)	7/24/1998
From: Herm	Read Replies (1) \| Respond to of 14162

Hi Mike, BB and RSI Indicators - Slant and Readings Let me add some more considerations to Doug's good reply. The PWAV RSI is still dropping (shallow)right downward slanted along with the BB and price. It may move sideways for a few days after today before PWAV continues to drop. Blowout Volume Increases The trading volume today pegged at 1,253,000 was more than 25% over the PWAV average of 631,546 to 693,700 that is being listed depending on where you read the numbers. In fact, the stock hit a low of $13 today. So, a dead cat bounce (Trader's bounce) price reversal/pivot from the overselling would not be out of the question tomorrow. But, that won't last and the volume will not match today's! You need confident buyers and with the EPS was just adjusted downward to .56 cents on 07/21/98 and a law suit, that may not come easy. CCing Defensive Moves! *"Let the trend be your friend!" "May the force be with your and not against you!* If you cover now at 1/4 you can turn around and execute another round of CCs by going two or three months out and one strike price down to grab a hugh amount of CC premie. With that money you can buy some cheap PWAV PUTs to hedge/leverage your drop! YOU ARE DEFENSE MODE - W for withdrawing price and second breath of fresh air before another price dunk. I would venture to say that the testing of the $9 -$10s of this past Feb. 1998. The PWAV P/E is only 2% below average. That's plenty of fat in a technology stock for all the savage shorting MMs and bad news sharks out there! "Perception becomes reality in the stock market." It is much easier to force PWAV down from here than try to raise the stock price. bigcharts.com NASDAQ: (PWAV : $13 5/16) $237 million Market Cap at July 23, 1998 Employs 305. Trades at a 2% Discount PE Multiple of 23.4 X, vs. the 23.9 X average multiple at which the Communications Equipment SubIndustry is priced. Protect yourself! Go defensive! Let your CC buyers pay your way! Thanks for another good learning experience!