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Non-Tech : The Critical Investing Workshop
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To: Percival 917 who wrote (6579)3/9/2000 6:08:00 PM
From: Dealer  Read Replies (1) of 35685
 
Just an example that I had voltaire help me with..... Thought it might help someone.

(This is for an example only! It is selling to far out in time!)

Suppose that you had 8000 shares of QCOM and you sold July 200 calls.

You want your stock (QCOM) to appreciate because you will make about a third of that appreciation plus getting your call premium But-

If there is a chance that your stock will be exercised.
You must buy the stock back by buying back the call just before expiration date. (3rd Friday of the month).

So Qcom is at say 220 that is 20 bucks over the strike price. The only way for you to realize this gain is to do what?

You must buy the calls back just before expiration. Buying back at around 2/3rds of the rise in the price of $14.

Say the day before expiration the stock is at 220, the 200 calls would be around maybe 2/3 thirds of the increase of stock 2/3 of 20.00 = about 14.00 to buy back.

It would cost you $112,000.00 (8000 X 14.00) to buy back those calls. You now have 8000 shares of QCOM @220 worth 1,769,000.00

When you buy them back you can turn around and sell the 220 August for somewhere around $22 giving you 176,000.00 per month.

Could not have done this without voltaire's help!

Thanks Voltaire
dealer
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