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                      08/26/04
 "Sell Covered Call" Option Strategy
                       
This module is empty because the picks found had very low probability to be profitable.
                       
      Stock Stock Trends Sector Trends      
      Symbol Daily Weekly Daily Weekly      
      MCD Up Neutral Up Down      
      HHH Up Down Up Down      
      SMH Up Down Up Down      
      INTC Up Down Neutral Down      
      MCD Down Up 0 0      
      #ÑÑÛËÊÀ! Neutral Up #ÑÑÛËÊÀ! #ÑÑÛËÊÀ!      
      HHH Up Up 0 0      
      SMH Up Up 0 0      
                       
  Last Expira- Call Call Break-even Max Profit  Time Value     Stock Call
Stock Stock tion Option Option     Price Option
Symbol Price Month Strike Price 1) 2) Target Symbol
MCD 26.95 Jan-05 27.50 1.20 25.75 1.75 1.10 64% 0.2% 29.05 MCDAY
HHH 55.9 Jan-05 55.00 5.30 50.60 5.30 4.10 62% 0.2% 61.35 HHHAK
  SMH 30.3 Jan-05 32.50 1.70 28.60 3.90 1.75 60% 0.4% 33.50 SMHAZ                        
INTC 22.77 Jan-05 27.50 0.60 22.17 5.33 0.60 62% -2.1% 0.00 INQAY
MCD 0.00 Dec-04 25.00 #ÑÑÛËÊÀ! #ÑÑÛËÊÀ! #ÑÑÛËÊÀ! #ÑÑÛËÊÀ! 0% #ÑÑÛËÊÀ! 0.00 #ÑÑÛËÊÀ!
#ÑÑÛËÊÀ! #ÑÑÛËÊÀ! #ÑÑÛËÊÀ! #ÑÑÛËÊÀ! 0.00 #ÑÑÛËÊÀ! #ÑÑÛËÊÀ! #ÑÑÛËÊÀ! ###### #ÑÑÛËÊÀ! #ÑÑÛËÊÀ! 0
HHH 0.00 Nov-04 55.00 0.00 0.00 55.00 0.00 0% #ÄÅË/0! 0.00 0
SMH 0 38261 27.5 0 0 27.5 #ÇÍÀ×! 0 0 0 0
 1) "No Loss" Probability. 2) Expected 1-Day Return.
                       
                       
About "Covered Calls"                

"Sell Covered Call" Option Strategy
 WHEN TO USE: you are sure that the price of the stock you hold will not fall.  Sell  lower
 strike options  if you are only somewhat convinced; sell higher strike options if you are confident stock will rise. If you think stock will stagnate, sell at-the-money options   for maximum profit.
 PROFIT: limited to the strike minus the market price plus the premium received.
 LOSS: similar to that incurred with ordinary stock ownership, only partially off-set by the option premium received. Main loss could be the opportunity loss if the market  rises strongly.
 RISK: unlimited. REWARD: limited.
 TIME DECAY: This position is a growing asset. As time passes, value of position increases as the option loses its time value. Maximum rate of increasing profits  occurs if option is at-the-money.
 EXAMPLE:"Sell 2 ABC May 50 Call @ $4.50". The seller would assume the obligation of selling 200 shares of ABC stock @ $50 per share. In return, the premium of  $4.50 per share, or $900, is received.
 OUR FINDING: Selling covered calls on stocks that have been hammered and have little chances of dropping further would provide a  safe play. According our back tests, 90% of stocks with strong bullish signals didn't fall below break-even points for front-month at-the- money call options.
  
 Naked Puts Vs. Covered Calls
 From the profit graphs we can see that naked puts are virtually equivalent to covered calls. Naked puts might be the top choice of a practical investor because they require smaller investments, thus providing higher returns. Covered calls appear to be based on personal psychological preferences.
 
                     
                       
                       
                       
                       
                       
                       
                       
                       
                       
                       
                       
                       
                       
                       
                       
Short Glossary                  
                       
Expected Profit is computed using the probability of profit and option prices over the projected probabilities. It is equal to the probability of profit multiplied by the price and sum over all possibilities. 
Example.            
Outcome 1. Probability = 0.1, Profit= $6
Outcome 2. Probability = 0.3, Profit= $4
Outcome 3. Probability = 0.2, Profit= $1
Outcome 4. Probability = 0.2, Profit= -$1
Outcome 5. Probability = 0.1, Profit= -$2
Outcome 6. Probability = 0.1, Profit= -$3
Expected profit equals $1.30.        
As a rule, when searching for picks, "No loss" probability and expected profit should benefit the trade.  Generally speaking, traders struggle for "No Loss" probability substantially higher than 50%. In the same way, most traders make every effort to find picks that have positive expected profits. 
                       
Expiration Date. The day when an option contract becomes void (the Saturday after the third Friday of the expiration month). 
                       
"In-the-money" Probability. Probability of the fact that the option will have any value on the expiration date, i.e. the actual stock price goes above the option strike. 
                       
"No losses"  Probability. Once you set a certain minimum level for this parameter, you can reject the picks that go beyond your desired risk level. 
                       
Put Option - the right, but not the obligation, to sell stock at a predetermined price (also known as a strike) at any moment before the expiration date. 
                       
Stock Technical Signals are based on various technical indicators for daily and weekly charts. Usually, swing traders check weekly charts to avoid fighting longer-term trends, while investors check daily charts for better timing of entry/exit points. 
                       
Time Value. Amount by which the current market price of an option exceeds its intrinsic value (the difference between the stock price and the strike). This additional value of an option is due to the volatility of the market and the time remaining until expiration. 
                       
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