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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: BDR who wrote (219)4/25/2001 1:01:32 AM
From: Mathemagician   of 5205
 
UF, I agree with Dale on this one (restricted to the buy/write scenario for now). In your example, you collected a $10 premium but then ignored it for the duration of the CC. What if, for example, you had collected interest on that premium because your broker sweeps your cash nightly into a money market account? Your calculation does not take that into account, though it does affect the total amount of money you've received at expiry.

It seems to me that this is the essence of the difference in your approaches: UF's approach assumes that the premium collected is locked up as cash with zero return. Dale's approach assumes that the premium collected is capital that is immediately available for further investment. I happen to agree with the latter.

Now, if we could only figure out if it's always one transaction or if it is two (or three)? :)

dM
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