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Non-Tech : The Critical Investing Workshop
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To: Jill who wrote (5622)2/29/2000 8:16:00 AM
From: Voltaire  Read Replies (3) of 35685
 
Hi Jill,

P in his post was wondering whether he would get called if the 155 strike call he wrote went to $165 and I said no not even if it went higher, PRIOR TO EXPIRATION. In other words people feel that when a stock rises rapidly above their written strike, they will get called, this is generally not the case.
WHY IS THIS SO IMPORTANT? It is imperative to be aware of this in order to prevent the Call Writer from committing probably his or her biggest mistake, buying a call back prematurely because of the fear of losing the stock. Never buy back a call before expiration except to roll up, make a profit on the call or unless the news is so overwhelming that it would be irrational not to do so.

If the writers of calls bought back every time the stock price exceeded the strike during an expiration period, their losses could possibly be huge.

V
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