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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 (10840)	5/18/1999 8:19:00 PM
From: David Wright	Read Replies (1) \| Respond to of 14162

Dan, Your compounding period has to match the cycle time of the availability of your principal. You had it tied up in the stock for 3 weeks, and could not reinvest it. My calculation of 40% was based on your three week period, assuming you used margin, which gives you a few percentage points above 50% leverage anyway. I actually could have done some negative compounding against your CC losses too, which diminished your trading account capital during the time you held the stock. McMillan goes through the whole exercise of calculating ROI in his CC chapter. It forms a good, conservative basis, since most of us only cycle our capital base (the money we invest in the underlying stock)a maximum of once a month while CC'ing. Now, obviously, if you get real lucky, the stock may flop up and down enough that you can do the cycle two times in a month, and you get to double your return. That can happen, since the average cycle from high to low to high is anywhere from 10 to 14 days on most of these stocks. The only problem is that the option prices are so sluggish most of the time, and time is, of course working against you, that a true double of ROI is highly unlikely.