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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: Dan Duchardt who wrote (10678)	5/10/1999 12:25:00 AM
From: tuck	Read Replies (1) \| Respond to of 14162

Dan et al. Actually I blew the numbers on my update. I agree the May 12.5s are too risky now. Again, using PHLX deltas, another look at the merits of rolling to June 10s versus 12.5s in light of an expected move to 13 and then a pullback (this is a 1 point move, so I just add the delta to the bid or ask of the call in question, depending on whether I am selling or buying back): Current nut: $8.5/share. CC'd with May 10s. With stock at 13 options prices are: May 10 -- 3 3/4; June 10 -- 4 1/2; June 12.5 -- 3 Roll to June 10s: Lowers nut by .75/share. Return if exercised in June = 29% Downside protection = 40% Roll to June 12.5s: Raises nut by .75/share. Return if exercised in June = 35% Downside protection 27%. Returns with margin I am using go up to about 45% and 53% for the two months, or 22% and 26% monthly. Considering that I deem a pullback possible, the extra 4%/month isn't worth the additional downside risk. The stock is riding a wave of good news. It could keep going for a while. But it started its runup from around 5 pretty recently, and could easily give half of that back, which would be 9. In that scenario, I get to keep a little of my profit. Thus I like the June 10s. Again, I'm awaiting a good protective put strategy. I'd like to see the risk/reward ratios on those, too, but I can run'em myself once given the parameters. Any takers? And would anyone like to prognosticate from the TA what the stock might do in this time frame? Both stochastics and RSI are near 80, and the MACD is leveling off, the stock has been riding the upper BB for a little while now. Looks overbought, but again, the market perception of the fundamentals appears to be growing more favorable -- and volume has been ramping as the story spreads. My interpretation of the TA supports my gut feeling that I want to be conservative and go to the June 10s, but I'm not known for my TA. Cheers, Tuck