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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 (8340)	8/22/1998 4:50:00 PM
From: Riskmgmt	Read Replies (1) \| Respond to of 14162

Herm: I have done very well on most of my stocks following the W.I.N. strategy, thanks to you and this thread. One stock I'd like your opinion on, is that "bucking bronco" the Cisco kid. She just doesn't seem to get tired. In all the carnage yesterday she barely gave up any ground and ended the day up an 1/8 on above average volume. I have rolled my cc's out further, sooner or later she will breakdown(I think). What's you current thoughts on it? regards, Ray

To: Herm who wrote (8340)	8/22/1998 8:50:00 PM
From: Wayners	Read Replies (1) \| Respond to of 14162

Herm you are absolutely right that most people don't know when to buy or sell a stock. A lot of times they know when they are supposed to do it, but when it comes time, they don't. Greed takes over at resistance levels--what if it breaks this level?--and fear takes over when you want to make yourself buy at a support level. Here's what I like to use covered calls for. Getting myself out of trouble when I manage to get myself in trouble which happens on occasion--where I've stayed in a losing position simply too long instead of taking the quick loss. I've written both covered puts and covered calls. I did this on VIAS which was the last time I got in trouble. I shorted the stock at $28 and it quickly started running up on me. So on the way up I sold the $30 puts and used that money to buy the $35 calls. VIAS topped out right out at the $35 resistance level and sold off hard. Afterall it had been on a long term downtrend. The stock was just testing the resistance level. Anyways I immediately sold the $35 calls, but kept the open put short position. Guess what happened? I got called out alright and kept myself out of a potential major loss. VIAS tanked big time going almost straight down past $35 down to $15! (a lot of it a gap down). Missed out on a big gainer--all because I failed to have the patience to short at a major resistance level. On the subject of bollinger bands and RSI. Neither gives guaranteed results. All they can do is put the odds in your favor. I started out just using trendlines, support, resistance and RSI and later moved onto bollinger bands. The rub with bollinger bands and trading based on technical indicators is that when the bollinger bands get really narrow, even pinched, it becomes exceedingly impossible, thats right impossible to predict in advance what the breakout direction is going to be. Its usually in the direction of the trend, but if you get it wrong, you can quickly get hit for a big loss. Low volatility on low volume in a flat, base like trading range is flat out impossible to predict. Unfortunately, these situations pop up everyday. You seen them in intraday charts looking at 1 minute ticks all the way up to weekly bar charts. Everytime I see this when I'm trading and I'm already in a position I get worried. There is only one way to overcome this. If you are at a support or resistance level already and you've got a profit--just take them and put in an order to get back in using a stop limit order just in cast the support or resistance level gets taken out. If price reverses your order doesn't fill and you walk away with good profits. If you order fills, you miss out on a little bit of gain, but you are back in for the next big move. Support and resistance using bollinger bands makes the most sense when the bands are wide and help very little when they are narrow unless you are gutsy to be playing intraday moves between the bands-no overnite holds. The other thing about bollinger bands is that the bands move/fluctuate a lot depending on what the last price was. You have to wait until near the close to have some idea what the band is going to be fixed at. You can't just look at where the lower band is for example at 1030 am and say, yea, this thing is at the lower band, lets buy it here. At the end of the day the lower band could be several dollars lower. RSI isn't perfect either. You have to wait until RSI is going up and making higher highs whereas price is flattening out. Then you've got a shot but no guarantees. I want to see this RSI/price divergence, I want price to be at a major support leve and I want to see the lower bollinger band providing support. In general I don't trade that way anyways. I'm back to trendlines. Trendlines breaks lead any technical indicator out there. I place buy stop limit order above important trendlines so that when the reversal occurs I have an order there waiting. Another tactic and probably a better tactic is wait for the price to come down and retest resitance level and the trendline at the same time after price just previously penetrated above the trendline. For trendlines I connect daily highs for last 3 to 7 days and follow the line down. Real good for position trading. Better tactic I think than using RSI and bollinger bands exclusively. Use them all. At all times know what the trend is, what the volatility is, what the momentum is, and where the major support and resistance levels are. Be able to forcast where trend, volatility and momentum are going. As far as stocks to mention. The only hot sectors these days seem to be in the internet and retail. With XIRC, I think you've got a really great trading stock. It trades in good volume and I wasn't charting it until I saw you mention it on the thread. I then went and checked it out. I like trading stocks like NSCP, XCIT, LCOS, XIRC, SEEK where the volumes high (low spreads) and the volatilies are huge--and of course they are all optionable in case I were to get in trouble.