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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: M. C. Orme who wrote (784)	5/24/2001 12:44:40 PM
From: Brian Sullivan	of 5205

Call Options will usually be called if the stock trades above the strike price even a penny above it. In fact since the expiration of the option isn't until Saturday, if there is significant news that would effect Mondays trading you may get called even when the stock closes below the strike price. Call options no matter how far in the money are almost never call away until the expiration date. Mainly this is because the owner of a call has the time value of leveraged money working in his favor. It similar to your home mortgage, people typically won't prepay a mortgage loan that carried a below market interest rate. With call options the below market rate is essentially a zero percent loan rate. Conversely Put Option are very likely to be called early when the are significantly in the money for the same reason as above. A Put option holder that has a significant gain will want to exercise the option as soon as the time value of the option becomes less that the money he could earn in US Treasuries on the leveraged amount.

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