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Technology Stocks : Network Appliance
NTAP 119.39+1.8%Dec 10 3:59 PM EST
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To: Uncle Frank who wrote (4761)10/21/2000 12:22:10 PM
From: kas1  Read Replies (1) of 10934
 
>> I ended up buying back my calls (at a hefty loss) in order to avoid getting my stock called.

I'll wager the increase in the value of the stock is significantly larger than the difference between the sale and re-purchase price of the covered calls.

The calls were on my entire INTC stock position. Therefore, what I "lost" was indeed made up by the appreciation in the stock. But when I said lost, I didn't mean monetary deduction from my account. I meant opportunity cost -- the gain that could have been mine but wasn't. Seeing a stock you own rocket upwards, and knowing you don't own any of this upward movement (because of covered calls), is painful.

You can't lose a thing. That's the beauty of the covered call strategy.

You can lose a lot if the stock declines. You fail to gain if the stock moves up beyond the strike price, which is opportunity cost. This is not a risk-free strategy.
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