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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 (10835)	5/18/1999 3:24:00 PM
From: tuck	Respond to of 14162

Dan and Dave, Lots of arbitrage and MM head fakes going on with SONE/EDFY today. Management is still busy talking to analysts, who seem to like the fundamentals of the deal, though. The June 12.5s have recovered some time premium thanks to a 10% see-saw in the stock today, and are looking a trifle overvalued again. So I'm stuck for the moment. Mean while it looks like I am missing something in OMKT -- huge volume and up noticeably on no news. Also looking at HYSL for CCing. C'est larvae. But feeling safe and happy with my return, even though I may be missing some opportunities. New ones will come. I'll come back with real money numbers when I make a move. And as always, I'm open to suggestions. Good to see you guys apparently making decent money since your arrival here. How do you like our thread so far? Cheers (settled for a bottle of Sam Smith Ale versus bubbly), Tuck

To: David Wright who wrote (10835)	5/18/1999 6:44:00 PM
From: Dan Duchardt	Read Replies (1) \| Respond to of 14162

Different strokes, for different folks, eh? Wouldn't be market if we all did it the same way! Yes indeed. It take's all kinds, and this has been a great opportunity for me to experiment a little and get feedback from all who have entered the discussion on EDFY. Thanks to all, especially tuck who called it to our attention, and put real money on the line with this one. Now about that return, I wouldn't want to be guilty of gilding the lily here, but I think my return was better than what you stated. I expect to be doing my call writing in a cash account (IRA), so I don't think too much about margin. I do, however, think a lot about return. In this, or any other case where rolling up and down is involved, return has to take into account the changes in the NUT over the lifetime of the position. The simplest way I know of to do this is to take a page from those other CC folks (credit card issuers) and calculate a daily average to serve as the basis for the position. There are more elaborate ways to do it, but this method is close enough. Although my NUT rose to 11_13/16 the day before I closed out, it was at 8_7/16 for 13 days, then at 8_13/16 for another 7 days and finally 11_13/16 for just one day. My average daily NUT was 8.723 and my return was 3_1/16, which (neglecting commissions) is a return of 35%, with no margin, in only 3 weeks. Yes, I did lose money on every call trade I made, but that possibility is inherent in writing covered calls, and bound to happen on a stock that takes off like EDFY. Had I just stood pat with my original position, my gain would have been only the original premium of 1_9/16 on the NUT of 8_7/16 or 18.5% as of the end of this week. (But of course I might not have bothered with the put in that case.) Had I held after my first roll up instead of cashing out, the return would be at most 3_11/16 on an average NUT of about 8_11/16 or about 42%, but that would not come along for another 5 weeks, and assumes EDFY holds above 12_1/2 until then. Believe me, if I had known EDFY was going up over 50% in this time, I would not have written calls at all, so although that would have been the best return possible it was never a consideration. Dan