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: Johndee who wrote (8284)	8/19/1998 5:26:00 PM
From: Herm	Read Replies (1) \| Respond to of 14162

Yeah, you got both stock going in the right direction today! CPQ down and CREAF up for a change! The MMs really hammered CREAF for the past three months! Here are answers to some email questions this week: QUESTION #1 If you have the time could you direct me to the site where you get the PE ratio of a stock versus the subindustry PE ratio. I use stocksmartpro.com which is a paid service. They do offer a two-week trial for free. I just look at the earnings growth rate and then the P/E to determine if the stock is getting ahead of itself or lagging and a good value. Very important criteria. QUESTION? I have not used the RSI indicator much. Can you give me a summary of its characteristics and its proper use. Bollinger bands are very clear to me but not so clear is the RSI as I have not worked with it as much. You can learn more about Bollinger Bands and Relative Strength Indicators at e-analytics.com. In a nut shell! The majority of equity growth stocks plot technical price buy/sell volume patterns which are readable and allow the savvy investor to pinpoint up/down price reversal cycles. There are other indicators that work but I don't care to use. I try to keep it simple and to the point. QUESTION? Could you more precisely define "short against the box" and "short squeeze". I have a cursory understanding of these phrases but I want to make sure I am using them the same way as the thread. The best summary I've ever read online is at savoystocks.com They did a nice job! QUESTION? I assume that unlike commodity options that when one wants to cover an option, whether long or short the option, that there is another commission that must be paid? Yes, you pay a commission when you close out the option unless it expires worthless. You do nothing then. At times the commission is more than the intrinsic value of the option and not worth closing. QUESTION? Since you try to go long at the lower Bollinger band with the stock or a call, what do you do if you miss evaluate the direction(especially if you bought the stock)of the equity and it tumbles. What is the corrective action and where/when is the corrective action initiated? That is described in our W.I.N. approach under withdrawing price. The defensive posture involves writing DEEP in the money CCs a few months out in order to grab as much premies as possible. Then, those dollars become the working capital to hedge your stock by buying large amounts of cheap PUTs. The result if you move quick enough is that the PUTs will offset the lost in the stock value and in many cases actually make you some money. The reason is that quick moves in stock price causes the options to appreciate or decay very fast. The volatility value enhances the option. So, in the case of the PUTs if the move is big enough you make more money. At the same time, the CCs that you sold become worthless faster. Since, you used your CCer's money to buy your PUTs, you are protecting your downside at his/he expense. With the profits from the PUTs you can then turnaround and cover your CCs at bargain basement prices. See the connection?