How To Write Covered Calls - An Ongoing Real Case Study! Message Board

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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!

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To: robwin who wrote (12791)	5/24/2000 5:45:00 PM
From: Herm	Read Replies (2) of 14162

You say, "I want to short 400 share of XYZ at $give a price above the current bid/ask." Bamm, they sell it and deposit the money into your account. Yeap! The whole wad is headed over minus commissions. If the stock goes down say six points, your long position goes down 6 as well and you short is cheaper to cover by 6. Dollar for dollar you have hedge your long position. Now, you will need to pay back the borrowed stock you sold which means you have to cover by buying back the same stock cheaper than what you sold it for. So, if you sold it for $85 on the short and can now pay only $79 on the open market, you get to keep $6 in your account and you are neutral as far as your position. Here is the danger! If the moves up, your long position appreciates, but, your short position goes up as well which it is possible to pay more than you collected in the first place. But, the position is still neutral and you break even provided you have exactly the same amount of shares. It works great and the pros do it all the time.

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