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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: Herm who wrote (9433)	1/12/1999 7:06:00 PM
From: Short A. Few	Read Replies (2) \| Respond to of 14162

(Newbie question, sorry) Herm thanks much for the continuing TOP quality coaching. I have a question concerning TSM which I consider to be the top drawer silicon foundry in Taiwan, having worked with them as a customer over an extended time. TSM trades options in very unusual strikes with two symbol roots. (I really like having more strikes available). The volatilities look quite large, yet I believe this company is comparatively well grounded fundamentally. The charts on this stock scream for CC's IMhO. I don't believe there has been any recent mergers which could explain the multiple symbols. They do have a large DRAM biz. Can you please advise - are the odd strikes European options? Do you know how I can make sure they are for 100 shares each? But most importantly do you like the charts? Your comments as usual will be very much appreciated, and thanks again. SAF

To: Herm who wrote (9433)	1/12/1999 7:08:00 PM
From: NetBuyer	Read Replies (2) \| Respond to of 14162

A painful lesson: watch out for adjustments to contracts after mergers Last fall, I sold covered call options in WCOM. Actually, the contracts were originally for MCI shares, but they were converted after WCOM bought MCI. Before I sold the Calls, I called my broker, Charles Schwab, and asked for an explanation of what the Jan 60 WCOM/MCI call contracts represented. "Let's see," he said, "one contract represents 124 WCOM shares, plus $18.62 in cash." Now I went over this with him at length, and it was my understanding that if I sold these calls and if WCOM ended up above 60, for every contract I would end up selling 124 shares of my WCOM stock at 60, plus I'd pay the $18.62 cash. Well, here we are in January, and WCOM has been on a rampage, all the way into the 70s. My usual terrible timing notwithstanding, the options are due to execute this Friday, and I'm planning on getting the $60 for my shares. But the trading price of the Call options seems too high given how close the expiration date is. Nervously, I called Schwab again, and asked the rep to explain to me what would happen when the contracts were executed. He looked up the contract terms, saw it represented 124 shares, and calculated it out just as I had. "Why then," I asked him, "is the option trading for so much more than its value?" The Schwab rep couldn't figure it out. He said he'd call me back, which he did a while later. Sadly for me, what he figured out was that these options "represented" 124 WCOM shares, but they only pay you for 100 shares! So instead of getting $7440 per contract, I'm getting $6000. Effectively, my sell price for the WCOM shares has been reduced from 60 to 48.34! I don't do much options trading, and this was the first time I sold a covered call. I'm taking a 20% hit because I didn't fully understand how the adjusted contract worked. I wouldn't have even entered into these contracts if the terms had been fully disclosed to me, which means today I'd still be sitting on my WCOM stock at 73 per share. It didn't help that these two bozo's at Schwab didn't understand it either. But it was my money I'm trading - so I should have been more careful. My ego's pretty bruised - thought I was too smart to make this kind of mistake. I guess the moral of the story is to be careful around contracts that have been adjusted. Next time I'll make sure I understand exactly what the terms are before I trade.

To: Herm who wrote (9433)	1/12/1999 8:55:00 PM
From: JimsJeeps	Read Replies (1) \| Respond to of 14162

Hi Herm, Held out and got 1 3/8's for my BTGC April 7 1/2 calls which put some cash and downside protection into my account. I didn't buy any sideshow puts, however. My nut now is $5.34. I plan to buy another 100 shares when it cycles to the bottom again. Looks like I am going to have some NOVL Jan 12.5 puts for dinner Friday night. Have 7 contracts at 3/4's. I bet they won't taste any better than the TNSI ones I ate last year. I am not clear on when to pull the plug on these bear traps. The charts indicated a withdraw at the time back to where there should have been a small profit, but it took off instead and never looked back. Any pointers would be appreciated as usual. Keep up the great work! Thanks again. Jim