May I use a situation of my own to ask
a few questions? I have a question about in-the-money
calls, a question about taxes, and a practical question about
how to interpret a daily volume number. I don't post a lot,
so if I'm out of line, please accept my apology..
In Jan I bought 400 shares of AXC at 9.5 (3800 + 19.95
or 3819.95) and sold the Feb 10 calls for 1 1/16 (425 -
27.50 or 397.5). I figure that makes my cost basis (including
the commissions) (3819.95 -397.5) / 400 = 8.56 per share.
The stock quickly dropped (it closed at 7 5/8 Friday). Last week
I bought back the Feb 10 calls for 1/8. Here I made a mistake
in not placing an All Or Nothing order. I got two partial fills in
one day, so I got the calls at 1/8 but had to pay the commission
twice. The cost was 2 times 1/8 plus 27.50 or 52.50 twice or
$105. Leaving a profit of $292.50 on the closed positions.
I believe my cost basis is now $8.82 per share.
Okay, that's the situation. Now for the questions.
What I will probably do this week is write 4 in-the-money
calls at 7.5. Using Friday's numbers from the Lombard chains,
they may be something like this tomorrow. The Feb 7.5 at 5/16,
the Mar 7.5 at 11/16, the Apr 7.5 at 1 1/8, and the Jul 7.5 at
1 13/16. My inclination is to write the Julys for the largest premium.
My first question is, have I got the idea of rolling down right?
The daily volume question is this. I notice that the volume number
for the July 7.5 Friday was zero. Does that mean if I tried to
sell them, there would be no buyers?
Now for the tax question. This idea just hit me so if I'm way
off, somebody please tell me.
What if instead of selling the far out in-the-money calls, I instead
bought 400 MORE shares of AXC at 7 5/8 (Friday's numbers I know),
and sold 4 feb 7.5 calls at 5/16. The idea would be to get called
out on Friday and then deliver the 9.5 priced shares for a $800
tax write-off (since the feb 10 positions are closed?).
Adding up the numbers I think I would end up still
owning 400 shares and my new COST BASIS would be slightly lower
at 8.8 and I would have that $800 tax write-off. If the stock goes
up before Friday I could just write higher priced calls. Okay, the
question is, is this right? What am I missing?
Thanks to any and all who care to comment.
Ray |
