Systematic Covered Writing

... more than just covered calls!

 

PRINCIPLE TWO

Between any two set points in time, there are a limited number of net price changes that can occur.  These possibilities are described below:

·        The stock's value can increase by over 20% during a specific time period.

·        The stock's value can decrease by over 20% during a specific time period.

·        The stock's value can vary with an overall net increase in value of from zero to plus 20% during a specific time period.

·        The stock's value can vary with an overall net decrease in value of from zero to minus 20% during a specific time period.

·        The stock's value can vary with an overall net unchanged value, again, during a specific period of time.

In other words - "A stock can go up a lot, go down a lot, trend upward, trend downward or just stay the same." The key to this principle is recognizing there are a limited number of possible overall net broad changes when looking at the beginning value versus the ending value that can take place over a specific time period.   If this seems confusing then consider this: “What could possibly happen to the price of a stock that would not be covered by one of the five choices listed above, during any specified period of time?”  One of these broad scenarios should cover any change that would occur to the price of any stock.

       

SYSTEMATIC COVERED WRITING
Copyright © 2005. All rights reserved.
Revised: 02/05/07