Hi elpovitopop,
One has to remember the first law of general call writing, never write a call on a stock that you wouldn't want to own.
Now, with the above in mind, who is better off if QCOM goes down to say $110 per share, Bebo or Bobo? Why yes, Bebo of course.
There is substance to your question if you assume a continual decline.
So let's use their situation in your assumption of a fairly substantial decline at expiration say 20 points.
Bobo is down, $30,000, and Bebo because he received $21,000 in cash is down only $9,000. He has spent $5,000 on improving his life and he takes the remaining $16,000 and puts margin with it and buys another $32,000 worth of QCOM at $114 per share or roughly 300 more shares. This time instead of selling 15 contracts, he sells 18 at the same percentage as last time, 10.4% or 11.85 per share or $1,185 per contract or a cash premium of $21,330, and Bebo's good life continues. Bobo is the one with the problem. As you can see, Bebo is gaining on the problem while living the good life and God help Bobo.
Voltaire |
