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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: dazzled who wrote (8842)	10/19/1998 7:42:00 AM
From: Herm	Respond to of 14162

Perfect timing dazzled! You are already in the money with those LEAPs and could easily write a (spread) CC for the April 12.5s @ 3+. That's a 55% return on you LEAPs not including the CC Call strike price of 12.5 for another 2.5 points. A total of 5.5 points or 100% return for six months is not hard to take. Further, it does not include that fact that you will have the 3 points for the CCs in your account during all that time. You could easily leverage the 3 point and buy more fore 10s LEAPs and repeat the process. If you got called out it would be a windfall of nice profit. You got to love it!

To: dazzled who wrote (8842)	10/21/1998 4:25:00 PM
From: Herm	Read Replies (3) \| Respond to of 14162

Hello Again Scott and Dazzled, CORRECTION TO MY PREVIOUS STATEMENT ABOUT THE LEAPS Thank to Rob who pointed out a mistake I made in some rates of returns. It is a good thing there are readers that do the math and keep an eye on stats and information. I do make mistakes at times. Rob wrote:" \| \|Herm, \| \|First off, keep up the great work on the SI thread! \|I am anxious to see your CD in action! You will have \|to post where the various SI members (and lurkers) \|can donate for all of your hard work. At least we \|can donate to your favorite charity on your behalf if \|you won't accept anything. \| \|I have read every post thus far - it has become a \|daily ritual. I am amazed at the amount I have \|learned from not only yourself, but others on the SI \|thread. I understand the WINS concept fairly well. \| \|My question has to deal with CC Leaps. I am not \|quite sure how the transaction gets closed. For \|instance, you replied recently," My Reply As far as your question! He paid 5.5 for the FORE 10 strike price LEAP down stroke. He writes only one CC round for say $3.00 and gets called out at 12.5 is $3+ $ 2.50 = $5.50. You are correct and I was mistaken the way I presented the situation. POSSIBLE OUTCOMES! 1. We break even as a worse case scenario if we are called out. Note! As FORE moves towards $12.50 strike price the LEAPs will become valuable. Depending on the BB and RSI, it is possible to cover the CCs at or before the 12 1/2 strike price and turn around and write another round of CCs a few months out at a higher strike price and larger premies. I personally don't like to cover CCs on gappers. I rather buy sideshow CALLs take my chances on the CCs. 2. FORE pulls back after this bounce since most stocks will re-test their 52-week low. Thus, we lock in the biggest CC premie and cover later to double dip another round of CC against the fore LEAPs when prices are higher and FORE is bouncing off an upper BB. So, let's say that we get to keep $2.50 from the first round of CC. You may be able to repeat the process more than four times before 2001. CLOSING OUT LEAPS SPREADS (CCing) From what I been able to gather from lurkers and readers is that each brokerage handles the process differently. 1. My DLJ Direct automatically exercises my LEAPs if I'm called out of the CCs in the LEAPs spread. The difference between my long lower strike price LEAPs and the higher strike price short CCs is credited to my account after commissions. So, 12 1/2 strike CC calls - 10 strike LEAPs = $2.50 diff. deposited into account less commissions. 2. For other persons they are notified that the CALLs have been exercise and to deliver the stock due! At that point, you would exercise your LEAPs to deliver the stock(s) owed to your CCer. The difference between the LEAPs and the CC strike is left in your account. The process is the same but as a manual brokerage transaction! It is possible to make more money with the LEAPs if the price moves up the next day when you exercise! Of course, it could go down and you eat the difference! 3. Last word of advice! You can close out your LEAPs CC spread at any point and pay the going rate for the CCs. The only reason I can think of is that you don't wish to wait to be called out of the LEAPs. Let's say you write a 4 month out CC and after the first month the stock gaps up due to fantastic news like they found a cure for cancer and the CCs are deep in the money! Heck! Eat the up front lost and turn around and CC to recover your give back in the last transaction. Don't forget that you still hold the LEAPs which are appreciating in value as the stock gaps! Under those kinds of situations you are better off staying on the CC work horse! askresearch.com