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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 (10476)	4/21/1999 11:58:00 AM
From: RDHickman	Respond to of 14162

fusby, CC b.e. is Covered Call break-even. I jumped in because I saw you were considering get out of NOVL just when I got in yesterday. Bought the Jan 10's at 13 and now will wait for the stock to advance and will consider selling the May 25's against the Leaps as a Stock Substitute. I would consider CPQ to be a candidate for this same approach at this time. Wishing you the best in whatever you do! /Dick

To: fubsy cooter who wrote (10476)	4/21/1999 12:37:00 PM
From: Herm	Read Replies (3) \| Respond to of 14162

Basically, when CCing you have to keep an eye on the price direction of the stock. IF THE STOCK MOVES UP! As the stock moves up and continues in that direction, your CC's strike price will lock you out of any upside capital appreciation in the actual stock. That CC break-even (B.E.) is calculated by the strike price + actual premie collected. So, in the example of a $25 CC strike + $2+ premie= $27 is the cutoff for you to decide to cover (perhaps at a loss) or buy some long calls as a sideshow to regain control. Of course, you are using some of the CC premies to do that. IF THE STOCK MOVES DOWN! As the stock moves down and continues in that direction, your CC's strike price may be way out of range, have eroded a great deal. Thus, the majority of the downside capital protection (the CC premie collected) has been used up. The CC's downside hedge is calculated by taking the strike price - actual premie collected. So, an example is $25 CC strike - $2+ premie= $23 is the cutoff for you to decide to cover your CCs! Generally, it makes no sense to hold onto an eroded CC where 80% to 90% of the value is gone and you can keep the majority of the original premie. You would most likely be able to free yourself up to write another round of CCs and grab much more premie dollars compared to holding on for the last 1/4 to 1/2 point remaining in the CC. So, you see that CCs can be used to protect or to leverage your profits. Never lose sight of that neat dynamics in CCing. Books? For starters, check out the free WINs PowerPoint presentation on doug's web site. It covers much of what I just explained. Plus, you can get the Excel templates! webbindustries.com webbindustries.com