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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: JohnM who wrote (810)5/26/2001 5:31:25 PM
From: BDR  Read Replies (1) of 5205
 
<<I now believe that once NUFO moves above 15.25, there is some unknown possibility and a strong likelihood at expiration. Is that right?>>

Count on it. Expect it. It will happen. Between the brokerage firms and the option exchanges they have systems in place that make exercise of in the money calls virtually automatic. You will in all probability get called out if NUFO is anywhere above 15, although transaction costs, low that they may be for insiders, may prevent exercise at 15.05 or even 15.10. That is why McMillan, et al., talk about profit being capped for covered call writers at the strike price. At anything above that price you will be called out and forego further stock appreciation. This is a very important point to realize and if you are not comfortable with the concept in general, don't do CC writing. If you are not comfortable with that prospect in the case of an individual stock at a particular point in time, hold off on writing calls.

<<Should the strike price be in the money as expiration time approaches, I need to consider buying the option back.>>

That's one option (foregive the word choice). You can roll out, up, or out and up as expiration approaches. I was mulling over my choices with regard to QCOM as the May expiration date approached in this post:
Message 15817350
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