The Options Box

[smchan]

David,

Most ideas come from watching the free scans at www.coveredcalls.com. I noticed certain stocks would appear on the list frequently for high monthly premiums. Second, I do a quick study the fundamentals of the stock. I like a low P/E, low debt, and cash reserves. Too much emphasis on high P/E blimps for me to be caught holding the bag (which is exactly what happened with one of my cc plays: JNIC).

I noticed ATM premiums are best, so if I decide I want a stock, I wait for it to trade near a strike price before moving. For example, I like SNDK when it's at 20, 22.5, and 25. 21.5 and 23.5 are not so good. SNDK can typically give a 10% 1 month profit if assigned on an ATM buy-write, though I've generally kept writing calls on mine. (I was going to be called out of SNDK in July, so I "repaired" the position. In hind site that wasn't very smart.)

Basically, in this bear market, I'm slightly below break even as of Friday's close. I started acquiring and working my positions in late May adding more in June and July. My basis is roughly at the closing prices, and nothing is above my current strikes.

I need to better understand when to close positions and initiate new ccs. For example, if I sell an option for $4, and get up to a week before expiration and it's worth 50 cents, it's probably worth covering in some cases and writing the next month out. I've lost out on some profits waiting for options to expire.

Sam