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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!
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To: Herm who wrote (11802)11/11/1999 9:09:00 PM
From: Richard James  Read Replies (2) of 14162
 
Anoyone but Herm, who should rest up. Sounds like you really are ill. Understand the worse thing you can do is push yourself, when you think you are recovered. Force yourself to rest.

Anyway, sold some Apr40 covered calls just 3 days ago for 5.625 when the stock (TYC) was 39.375. This is my first experience with an option. Stock has jumped up to 44.125 as of the close,when I could have bought back my calls for 8.375. Am I correct, in that calls price movement is lagging behind that of the stock? Is this normal and why?

Current Price of Stock: 44 1/8
Less Price sale of call: 39 3/8
Appreciation of Stock: 4 7/8

Buy to Close Call: 8 3/8
Sell to Open Call: 5 5/8
Loss on Option Trade: 2 6/8

Net Result of closing
Stock and Option positions: 2 1/8

Actually, I don't plan to sell the stock, but close the call. Does this make sense. Assuming that the stock will be above 50 by expiration in April, the results would be:

Keep open position until called 40
(assume they will be called): 5 5/8
45 5/8

Assumed Price of Stock at
time of expiration: 50
Reduced by loss on option
trade: -2 6/8
47 2/8

I guess that it would make sense to cover
now, if the stock price will exceed the 45 5/8 plus the cost to cover, 2 6/8, which is 48 1/8. If it will, only the market god knows, but have I at least thought this out half assed right? (I realize that I haven't included the value of time or commissions and fees)
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