This section shows how to use the Optionetics Platinum web site to find favorable covered calls for the stocks that you own. The objective is to look for situations where the options are expensive, and you receive a high premium to sell the call. The web site tools show how much you will earn if the call is assigned.

The following is an outline of the approach:

• Click on Chg My Stk List on the Welcome Page.
• Enter and save your stock list on the page that loads.
• In Create A Rank List, choose My Stock List for input.
• Change the percentile ranker to output the all categories and click on expensive options.
• Save Create A Rank List output to List 1.
• In Edit My Rank List, move the desired top ranked stocks from Rank List 1 to Rank List 2.
• Rank the profitable covered calls in Create A Search. Vary the projected stock price to see possible future scenarios.
• Click on the desired Covered Call option combo from the Create A Search output. This brings you to the Risk Graph.
• Name the trade in the Risk Graph Analyzer and save it.
• Perform a single day analysis of the trade in Edit My Trades to determine your profit/loss characteristics.

We want to short a call while owning the underlying stock. We want to collect a substantial premium and protect ourselves from the stock turning bearish. We are willing to sell the stock if the price is right.

If you are following along on Optionetics Platinum web site:

• Set the date on the Welcome Page to the date for this example, 06-01-99, (You would normally leave the Welcome Page date at today's date).
• Click on Chg My Stk List.
• If 06-01-99 is not an option:
  • Click All Dates or
  • Change the "Access from date" in My Personal Data as discussed in Chapter 5 > "How to find and enter a Limit Order Option trade"
• Enter your stock symbols in the bottom text box in Specify Your Stock List.

See "How to enter an option trade: Bull Call Spread" which shows how to use symbol search.

The stock symbols we are using are:

AOL MSFT DELL YHOO COMS TXN.

Hit the save and exit button.

The stocks in My Stock List will now appear at the top of the Welcome page. A click on a symbol will take you directly to the Risk Graph. Instead, click on Create A Rank List and make sure the selected date is 06-01-99 or the date you have chosen.

In Create A Rank List at the top you will see "Input To Ranker".

Choose "My Stock List". The choice of "Number of stocks in Output" will be A. We want all our stocks to be displayed, so change the display to "All Categories". The Output From Ranker goes to List 1 (default).

Click on the "expensive options" button for the percentile ranker. The 06-01-99 high IV percentile ranking of My Stock List are shown using the above link. COMS and TXN have high IVs. The others are not as high. Create A Rank List has already saved the ranked lists to Rank List 1, the default output list.

We are going to reduce this list down to the top 2.

• Click Welcome Page at the top of the page.
• Click Edit My Rank List on the Welcome Page.
• The stocks found by the Create A Rank List should be in Rank List 1.
• If this is not true, perform the operations just described and try again.
• Go down the web page.
• Just below "Choose which List to Use", change it to Rank List 2.
• Type in COMS and TXN in the text box below that.
• The web page does not accept stock names, just stock symbols.
• You can also cut and paste to get your symbols in the text box.
• Click the save button and the Rank List 2 display will show the stocks that now reside in that list.

There are a lot of options in Create A Search and we will leave most of them at the default values. Read the Chapter 4 > Create A Search help file on the Help home page for more information.

• Change "Search for trades in" to Rank List 2.
• Checkmark the Covered Call Option in the bullish, high IV column just below "Select your desired combo to search".
• Change "Sort by " to Expected Profit.
• Change the primary strike variability to 50%.
• Name your Covered Call Search at the bottom.
• Checkbox the "Save this criteria" box.
• Click "Search 6-01-99".

The top option is a TXN 2001 Jan 120 LEAP. We receive a $2575 premium. The stock costs 106 5/8*100 = 10662. The covered call costs was 8087, so the premium received was 10662-8087. Lets look at these trades under two what if? scenarios.

• Click the browser back button to get back to the Create A Search page.
• Uncheckmark the "Stocks will move" box. The uncheckmark turns the search option on.
• Choose 1/2 std deviation higher in 180 days.

We are going to make the stock price move 1/2 a statistical volatility standard deviation in 180 days to a higher value. Stocks are usually assumed to randomly vary with a 1 standard deviation SV in 365 year. See Chapter 2 > Projected Price for more discussion on price predictions.

• Click the Search button with the save criteria button off.

Hit the back button and use the lower option for std deviation in projected price. The TXN LEAP trade remains on top.

Click the covered call strategy link for the TXN trade in the Create A Search table output.

We are taken to the Risk Graph with the covered call trade loaded.

The risk graph is shown using the above link. We have received a large premium, but there is a lot of time for TXN to move higher. We have downside protection to a stock price of 82. As it turns out TXN makes a strong move upwards through 1999. The call was likely assigned, and you probably had to sell the shares, although with a substantial profit. The downside is that if the shares had been held outright and not sold, your profits would have been considerably higher.

Try the same stocks again but at a different date. You saved the Search Criteria so a new search is easy to do.

• Change the upper left date on the Welcome Page to the one desired.
• Click Edit My Searches.
• Change default to Rank List 2 for the Covered Call search you saved.
• Click Search.

Click Edit My Trades on the Welcome Page using 6-01-99 as the date. Make sure the report number is the one desired.

Click single day analysis.

The above link shows the results. If the stock were to suddenly drop from 106 to 86, we would be down $2000 without the option, but with the option we are down only $1013. However, if the stock rises to 126, we are up only $570 instead of $2000 without the option. Time decay is slow with a LEAP option, and it would take over 380 days to recover the time value back to $2000 at 126.