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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Geoff Nunn who wrote (82579)	11/28/1998 12:21:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 176387

Geoff, the ~2.5% per month is net of commissions, but does not include income taxes. It represents the actual amount of cash I receive by selling at the bid, and repurchasing options (if necessary) at the asked price. As I said before, I write options with a strike price of about 15 - 20% higher than the underlying stock price. I am currently working on a what-if scenario with Dell stock going back two years using the following parameters: 30 day options are written each month as part of a paired transaction, a 4.5% interest rate is assumed, and constant implied volatility is assumed. I will compare the results to 91 day options for this same period. On the issue of implied volatility I read the other day in a secondary source that the implied volatility may in fact be non-constant and is not related, nor should it be related to beta. But it was pointed out that it really is a plug variable because it reflects the thinking of option writers and buyers the probabilities of stock movement. The author pointed out that it is entirely possible to have any combination of beta and volatility. Sorry, I was in the library and didn't write the name of the book, but it was published by MacMillan. My belief is that writing short-term, out of the money covered calls is an excellent way to enhance total returns, so I am less concerned with the theoretical underpinnings of the B/S model than results, and so far I will point out that in the case of Dell I have written calls that averaged about 3.5% of the stock price and so far all of them expired worthless. The one situation where I have been assigned recently was with TLAB where I wrote Nov 50s and had to repurchase the options at around $6 for a net loss of $5. Other stocks have had much lower implied volatility (like HBOC) where the premia have been only around 1.5%. So when I quote the 2.5% you need to understand that this refers to the mixture of stocks in my portfolio. Hope you left some turkey alive for next year! TTFN, CTC