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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: David Wright who wrote (10773)	5/13/1999 7:24:00 PM
From: stockycd	Read Replies (2) \| Respond to of 14162

All, I was wondering if anyone could comment on the following strategy. I've been trading options for a couple of years and just recently realized that the option sellers make the most money. Here's my senario based on 1000 shares of DELL. ALL COMMENTS WELCOME... I buy 1000 shares of DELL at 42.50 on 5/12/99. I immediately write 10 AUG-99 contracts at a strike of 42.50 for 6 1/2 each. I noticed that as the price of a stock with a high premium (or implied volatility) moves up, the premium on that call goes down. e.g. from 5/12/99 AUG-99 32.5---strike + call price (ask) = $45.50 But... AUG-99 42.5---strike + call price (bid) = $49.00 That's 4 1/2 bucks of premium erosion or ~14% based on $32.50 So if I hold the DELL until it gets ~53/share, I can buy back the calls at a reduced premium (but higher price), keep the rise in the stock, and write more calls at a higher strike. Comments?? Chris