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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!

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To: Mathemagician who wrote (13731)	6/26/2001 7:16:21 AM
From: jaytee	Read Replies (1) of 14162

M Here's what I see. You BOT X @ 15.00. You SELL and get 16.00 back for a 1 mo. term. Namely, 3.50 (today in premium)+ 12.50 (which is a LOSS of 2.50 on your 15.00 investment) So, if you PAY out 15.00 to buy "X" in June, and receive, in return,a total of 3.50 plus 12.50 (the in the money strike price you decided on when called out) you are looking at 16.00 anyway you slice it. And that's a buck. That buck is 1/16th or a 6 2/3 % return. If you like math, you'll appreciate the "rule of 72". Divide the interest rate you are receiving (monthly, yearly etc.) into 72. That's how many (months/years it'll take to DOUBLE YOUR MONEY). Example: 72 divided by 6 = 12 (mo/yr or whatever your time frame actually is) Provided you work this money @ this pace (6 per cent) and KEEP investing the proceeds (profit) with your initial investment, you will have come to DOUBLE your money in 12 months. Something my uncle called THE 8TH WONDER OF THE WORLD . . . .. compounding interest And that kind of return is not too shabby, no matter how you want to add it up jaytee

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