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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: FaultLine who started this subject6/20/2001 9:50:33 PM
From: JohnM  Read Replies (2) of 5205
 
I could use some help with a decision. I sold some Jul 40 contracts on GMST on Monday for 2.15. If you've been following GMST over the last couple of days you know it closed today at 41.36 and thus the premiums are much higher.

I'm trying to decide what to do about this. Should I hold and get called; should I buy back; or should I roll out to August? At the moment those are the options I see I have. If you see some other let me know.

It might help to know that these shares are part of our core ltb&h holdings, they are underwater but not terribly so. Moreover, we have not decided whether to let them go and rebuy, though we are leaning in that direction since we expect the naz to move lower and gmst with it.

One piece of information I lack to help with the decision is what stock price places us in a call zone. Is it any trading price about 40? Or is it any trading price above 40 plus the lowest premium paid? I assume it's the latter. Thus, let's assume the lowest ever paid was $2.00, we are not in a call zone until the price is $42.00.

I'm also assuming that even if GMST moves above that price, the odds of being called out are quite slim. But that those odds increase as the stock price moves higher. Is that right?

If I bought back tomorrow, I would lose $2.05 a share (the CBOE closing quote today is $4.20). The August 45s are selling for $3.10. A buy/sell would leave us $1.05 ahead. Do those calculations sound right? Would that be wise if we concluded we wished to hang onto the shares?

Thanks in advance for any help,

John
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