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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!
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To: KevinD who wrote (11376)8/13/1999 9:34:00 AM
From: Dan Duchardt  Read Replies (1) of 14162
 
NateC wrote:

I guess Kevin.....that what you wrote is also the way I interpret McMillan. It's just that it's a bit unusual in business circles to do it that way........if you decrease your investment "in" by the amount of premie received.....then you shouldn't be able to count it AGAIN as return, when the investment is over.

KevinD replied:

I don't see what you mean by counting it again as return. Well maybe I do. I'll have to think about that.

I don't see anything in Kevin's original post that implies counting the premium twice, but NateC is certainly correct that it must be counted only once. The premium is either considered a discount on the purchase price of the stock, OR it's additional return on the stock when you sell it, but not both. Because the date of the call write is typically closer to the date used for the cost basis of the stock itself, counting the premium as a discount gives a better estimate of the ROI.
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