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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: VincentTH who wrote (8552)	9/13/1998 5:40:00 PM
From: Herm	Read Replies (1) \| Respond to of 14162

Hi Vincent, I read the Barron's article and Larry McMillan's comments. I must say he mentioned several possibilities all of which we have been doing and discussing: 1. He mentioned in the second paragraph writing covered calls as a hedge as the traditional strategy. Yes, that is why I like to grab large premies in at the money and a few months out. The W in Wins. 2. He mentioned in the same paragraph buying out of the money PUTs as additional protection. He does say it is expensive. But, I notice that Larry McMillan always talks about selling out of the money CCs which bring in lower premies to begin with. That is where we deviate somewhat from Larry's views and successfully pull it off! 3. In the fourth paragraph he mentions "the most expensive options are the longer term puts and calls. One approach is to consentrate on strategies in which the higher-price options are sold and hedged by cheaper near-term contracts." Bingo! That describes what I said above about selling EXPENSIVE options to buyers and hedging with cheap puts! Now, that fact that you can generate premie $$ CC money in one stock and use that cash as working capital for buying (hedging) cheap PUTs on no brainer overvalued stocks is even better. That is more selective in producing even more profit to offset and held long stock position. 4. In the 5th paragraph Larry dicusses the "simplest move is to sell a 'calendar spread' - that is, sell a longer-term option and hedge it by purchasing a short-term option at the SAME STRIKE!" I think you said higher Vincent. Well, how about that? That sounds like our dippity do! That is, sell long expense calls and wait for a pull-back and cover at a much lower price for a net profit. Well, actual stock ownership is taking the place of the short term calls and in many cases the net cost basis will be at or below that long calls. 5. Those calendar spread are really profitable using the LEAPs and selling CCs against them. Conclusion? I think we are employing many of McMillan's ideas and we employ even more option tools like setting bear traps and becoming the "bear hunters." We all need to know how to be defensive (hedging our positions) and how to be offensive predators (shorting) for quick profit kills when the market tanks. Hunting season is not over!