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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 5:09:47 PM
From: Dr. Id  Read Replies (1) of 5205
 
I now wonder, then about the following. I had thought I would not be likely to be called on my sale until NUFO reached $16.30 ($15 striking price
plus $1.30 option premium). I now believe that once NUFO moves above 15.25, there is some unknown possibility and a strong likelihood at
expiration. Is that right?

John,

You seem to be confusing what you are getting for the stock (if you sell a 15 for $1.30, you are in essense receiving 16.30 for the stock upon exercise of the option) with the strike price. It's pretty simple...if the stock closes 1/8 of a point above your strike price (15), you are likely to be called away. You CAN be called away if it finishes exactly at 15 (it happened to me) but not likely. However, if you are called away at 15 or 15.125, you have made a profit as you basically sold the stock for 16.30.

Called away or not, you subtract that 1.30 from the cost basis of your stock, as it's now in your pocket.

Hope this clarifies it for you,

Id
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