Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study! -- Ignore unavailable to you. Want to Upgrade?

To: Johndee who wrote (8976)	11/9/1998 8:13:00 AM
From: Herm	Read Replies (1) \| Respond to of 14162

Actually Johndee, the suggestion to/or not to exercise the long calls we refer as a "sideshow" should be at a lower strike price for the same month of the CC expiration. The combination of CCs balanced with leveraged with a lower long CALLs is part of a recovery spread we have discussed on this forum before. Situation? You write a round of CCs. A news flash pops out of nowhere and the stock shoots upwards distorting the technical chart of the BB and RSI. You don't want to cover your CCs at a lost. Rather, you quickly take a position in long calls at a lower strike price for the SAME month expiration for the CCs. Since the stock is appreciating in value your equity will increase and it should give you the buying power on margin for the cost of the long calls. Now, depending on the month of the expiration you will know for sure if you will be called out! If that does seem probable then you would exercise your long calls and debate if a buy/write is warranted. That means you exercise/buy the stock and at the same time write CCs. That way if there is a immediate pull back you are hedge by the new CCs! This approach will give you much greater control of the risk compared to covering at a lost and writing new CCs. I have been burned more by doing that and never been burned with the method described above! Every book on the market talks about covering CCs at a lost and I'm dead against it because it involves more risk on your part. I always try to position myself where the CCers are taking the bulk of the risk. Let them pay for your profits! against doing that for "It much better to be the hammer and not the nail!" Good question Johndee!