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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: Wayners who wrote (8315)	8/21/1998 12:40:00 PM
From: Douglas Webb	Read Replies (1) \| Respond to of 14162

You're right that writing deep in-the-money calls means that you're selling less time value and more intrinsic value. But you have to consider this as part of the overall strategy. If you're following the W.I.N. strategy, your stock has hit the upper BB, RSI has peaked, and you're expecting the stock to drop. Based on the BB and past performance, you have some idea how far the stock might drop, since you expect it to hit the lower band before it recovers. You also know what your net cost is for the stock. So, the strategy is to write calls that are either: A) Currently at-the-money, to get the most time-value premium, or B) Will be slightly out-of-the-money when the stock hits the lower band, to get the most time+intrisic value premium now, with a low buyback price later, and C) Have a strike price higher than your net cost after writing the calls, so that if you guess wrong and get called out, you'll still make a profit. In your example, you buy a stock for $20 and let it rise to $30. You then write a $20 call. If you sold the stock instead, you would earn a $10 profit, as you said. But, if you write the call, you'll get the $10 intrinsic value, and probably $2 or more time value, which drops your net cost to $8. If the stock price drops back to $20, you'll buy the call back for around $1.50, which will bring your net cost back up to $9.50, which is a somewhat more profitable position than your approach. Doug.

To: Wayners who wrote (8315)	8/21/1998 5:54:00 PM
From: Herm	Read Replies (1) \| Respond to of 14162

Hi Wayne, I welcome you astute input and interest in our topic. Thanks! Your statement is 100% correct IF you are writing covered calls by the traditional dogma. Every book written under the sun has approached the CC subject from that perspective. And as you well know, every warning about the pitfalls apply. The intrinsic value vs. time value advice being one of them. This forum has written a new chapter or twist to the subject. It involves a specific sequence of events (price peaks, price drops, price moves sideways) which requires the investor to easily respond with pre-determined option transactions (writing CCs, covering CCs, buying PUTs, or buying CALLs) to protect and enhance the profitability of the long position in the stock. Notice, I said long position and not day trading in and out tactics. This approach is for those folks that can't be glued to a computer screen all day and generally don't bounce from one stock to another. Also, those individuals just starting out and wish to start CCing. CCing using LEAPs is another stroke of genus members of the forum came up with! Perhaps you would like to see the big picture by reading the post at Message 5504861. I'm sure you may have something to add that others have left out! Hey, we are all here to have fun and make a profit. We look forward to you joining us and sharing your expertise Wayne! Herm