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Strategies & Market Trends : Stock Attack -- A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Magnatizer who wrote (14575)	8/13/1998 6:08:00 PM
From: Robert Graham	Read Replies (2) \| Respond to of 42787

Selling CALLs is to either bide time to the next run up, or to take part of the profits made on the stock on its pullback after a run up. If the stock was instead to reverse into a short term downtrend, selling CALLs would not be appropriate. Selling the stock would be the smart thing to do instead of writing CALLs on a covered position, and perhaps purchasing PUTs. So IMO selling covered CALLs is a neutral to bearish strategy for the short term with a bullish longer term perspetive on the stock. Once the longer term perspective changes, then IMO it would be time to sell the stock. The exception to this is when stock is purchased for the sole purpose of writing CALLs. Then a neutral to slightly bullish longer term perspective would be important here. For a short term outlook, volatility itself of the underlying stock would be what is important, but volatility that respect important supports. That is why the bullish bias would still be helpful. A good approach to purchasing stock for covered CALL writing would be to get a stock that has short term upward momentum. Purchase a CALL for entry. Once the stock has moved up by a predetermined amount placing the purchased CALLs deeply in the money, then convert to stock. When the stock tops out on its first leg up, then write the covered CALLs. It may also be helpful to take some of that money and purchase cheap protective PUTs with respect to your cost on the stock. Ride the stock down and cover for the next move up. This has allowed you to lower your cost basis. As long as the bias of the stock remains up, you can continue to cash in on the volatility. The stock does not necissarily need to make news highs the second run up in order for this approach to work. At this point, you are playing aggressively off of the volatility of the stock but still keeping the prospect open of being able to cash in on the stock if it does make new highs. So in this way you have it both ways. IMO selling naked CALLs is risky and is an approach that needs to be monitored closely. I think the trader would need to be very familliar with the underlying stock in order to attempt this strategy. There is the risk of a sudden move up by the stock that can place the person in a losing position that is theoretically unlimited compared to what you made on writing those CALLs. Considering there are other ways to make money that are less risky, I look at this approach as needless risk. Since I have never attempted this before, perhaps a person who is experienced and has a successful track record at writing naked CALLs will comment here. Just some thoughts. Bob Graham