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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: fubsy cooter who wrote (10382)	4/16/1999 8:49:00 AM
From: Herm	Read Replies (2) \| Respond to of 14162

If you can trade the CPQ LEAPs in spreads with your brokerage, I would go that route as oppose to buying the stock. CPQ price has not settled yet. So, you should be able to buy into CPQ around $23. Now, if you are willing to spend $500 x $23 = $11,500 for the stock, you could buy with the same amount of money and control the value in LEAPs (CPQ CALL 15JAN01 @ 12) 9 contracts for the year 2001. That 900 shares of CPQ if you wanted to exercise later. UPSIDE GAP Your B.E. is $15 Strike + $12 LEAP cost = $27 before you have to act if CPQ gaps upward. Not hardly at this point! So, with 9 CPQ LEAPs you can write CCs (calendar spread) 9 CPQ 30s OCT @ 2 = $1,800 premies (16.67%) If you are called out you make another $3 since the strike price of your CC is $30 and your LEAPs B.E. you have to clear is $27. So, $2 premies + $3 CC strike = $5.00 total profit on $9.00 investment (56%). If you wait for some CPQ price increase the pot is larger. NYSE:CPQ Last Sale: 23 5/8 -5/8) CPQ Trading Summary 15-APR-99 Ticks Money Flow($MM) Avg. Price Small Blocks +454 -460 +6.8 -8.3 23.7710 Large Blocks +19 -29 +10.2 -27.6 23.7579 Total: +473 -489 +17.0 -36.0 23.7620 14-APR-99 Ticks Money Flow($MM) Avg. Price Small Blocks +492 -501 +6.9 -10.1 24.1360 Large Blocks +18 -21 +10.9 -17.6 24.1241 Total: +510 -522 +17.8 -27.7 24.1295

To: fubsy cooter who wrote (10382)	4/16/1999 11:37:00 AM
From: Herm	Respond to of 14162

I had a slight error in my math. That's what I get for trying to rush out the door and answer a post. Sorry! Jonathan couldn't figure out my new math! Thanks :-) My brain came out with a clear $5/$12=42% if called and 17% if not called out! You paid $12. Add that $12 to the $15 strike and you get $27 that you have to clear for a clean profit. You sold the CCs and you now bring in 2 in premies as income. You then get called out and pickup past your B.E. of $27.00 another $3.00 since the CC strike is $30. You take in $2 in CC premie and collect another $3 in the difference between your B.E. of $27 which includes your original 12 downstroke the the called out strike of $30. Calculated two ways if called out: $30 CC strike $30 CC strike Obligations $15 LEAP Strike $15 LEAP Strike ----------------------- ----------------------- $15 difference $15 difference $10 LEAP cost - $12 original LEAP cost --------------------------- --------------------------- $ 5 profit (42%) $ 3 profit of stock profit $ 2 CC income profit ---------------------------------------- $ 5 profit (42%) Only $2 (17%) profit if not called out in this case!