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Technology Stocks : USRX
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To: Jeffery E. Forrest who wrote (17084)3/28/1997 10:45:00 AM
From: Dan Woodbury   of 18024
 
I played around with covered calls (in several stocks) earlier this years and although I "made" some money on the calls, I lost just as much money watching the underlying stock drop in value. This led me to the conclusion that I could realize a greater gain if I just traded the damn stock and left options to the professionals.

Perhaps what I dislike most about covered calls is that it introduces additional uncertainty into my portfolio. With stock, I can easily set sell and stop limits and let things go from there. With options, I also have to worry about the additional cost of buying back the option as well as the loss in profits if the stock rallies. Granted, I get cash up front for selling the option but I give up some flexibility in my trading.

The one thing I don't understand about covered calls is what standard is used to determine when and if your in the money options get called. For example, if I sell May USRX Calls at 55 for a $5 premium (just guessing on the price) how long do I have to sit on the options if USRX rallies to 65 in April? Would I have to wait until May expiration for my stock to be purchased at $55 or could I expect the option to be exercised sooner? It is this uncertainty that makes me especially wary of writing calls on volatile stock.
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