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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: yaumi who wrote (8908)	10/30/1998 4:27:00 PM
From: Douglas Webb	Read Replies (1) \| Respond to of 14162

Here's the analysis page for your position, using the Recovery Spread tool on my site: webbindustries.com Your current breakeven is your net cost, $55.56. You want to choose a recovery spread with a similar breakeven, a low entry cost, and a chance to earn a profit. None of the Nov or Dec spreads show a profit, so skip those. The first bunch of Jan spreads show profits, so you would choose one of those. One spread which stands out is the Jan99 55-65 spread. You would buy 2 Jan99 55 calls, and sell 4 Jan99 65 calls, for a net cost of $149.80 (plus commissions.) Your breakeven point is $55.65, almost the same as it is now. However, if SBUX closes above 65 on the Jan expiration date, you would turn a profit of $3738.20, instead of $1888 without doing the spread. If SBUX closes below $55, you lose the $149.80 it cost you to open the spread. That's the limit of your risk on the spread (you still have the risk of owning stock, though.) This spread would be better than just owning the stock so long as SBUX closes between $55.88 and $74.25 on the Jan expiration day. The other Jan99 spreads worth looking at also involve selling the Jan99 65 call, but you would buy deeper in the money calls. (45, 47.50, 50.) These all have higher profits for a close above 65, lower breakevens, and wider profit ranges, but they have higher entry costs, and hence greater risk. Doug.