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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: NateC who wrote (10044)	3/23/1999 3:10:00 PM
From: Cesare J Marini	Read Replies (1) \| Respond to of 14162

Nate, It depends on your broker. I called Schwab this morning to ask the very same question, and they told me that if I had both the equity and a LEAP position, they'd deliver the stock first and leave the LEAP untouched. Joe

To: NateC who wrote (10044)	3/23/1999 5:17:00 PM
From: RDHickman	Read Replies (1) \| Respond to of 14162

Nate, This is a copy of Private e-mail I sent you on Sunday. I am beginning to appreciate all of Herm's effort. Let's see...... #1 The Investor's intention is to make a small profit on a monthly or semi-monthly basis using Deep-in-the-Money L.E.A.P.S as a stock substitute and Writing Out-of-the-Money conventional Calls. Why Buy DIM's? Because, if there is a rapid run-up in the Stock Price AND you are Called Out, you are covered dollar -wise. Assume the Leap has increased in price by some delta figure in keeping with the Stock Price. Let's say it's value is $21 at exercise. Stock Price = $72 The Leap Strike = $60 Investor's Cost = $17 Value of Leap + Cash = $77 Total Covered = $77 Conventional Call Strike = $80 (more than $77) New Value of Leap + Cash = $81 ($77 + $4) Profit = $ 1 Plus the $2 premium = $ 3 total for the play And this is a "worst-case" scenario. If you don't get called-out, you can do it again and again. For your AOL projection, you should be able to plug-in your own numbers. I believe the above is a reasonable work-sheet. In following up, I found AOL closed at 129.87 yesterday (Monday). The stock drop to close at 121.50 today (Tuesday). The Jan 00 80's are approx. 54.50 and the Jan 01's are 63. I cannot determine how you paid $34 for them on Monday. Footnote: AOL is a highly volatile equity. I look for more stable stocks with less volatility to use L.E.A.P.S as a Stock Substitute to Write conventional Covered Calls. Need to sign off for the day. Good Luck /Dick

To: NateC who wrote (10044)	3/24/1999 8:47:00 AM
From: Herm	Read Replies (1) \| Respond to of 14162

Hello Nate! You have to view the two as separate transactions. LEAP+CC and Stock+CC. So, your 80 JAN01 LEAP would more than cover an April 130 CC being exercised. Of course, you would need to add the cost of the LEAP to the strike to determine your breakeven point and net profit. CC Strike price - LEAP strike price - net cost basis = net profit. The stock+CC would be handled like we have in the past. That is, your CC strike - net cost basis = net profit. Now, they may call you out of 2, 4, 6, all 8 CCs. You never know! I would venture to say if you get called out of all 8 CCs it is straight forward. Otherwise, they would give you the choice of which ones you wish to liquidate. I sure would call you if I were the brokerage. You need to confirm that with them!