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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!
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To: Herman J. Matos who started this subject1/22/2001 10:44:44 AM
From: JungleCat  Read Replies (3) of 14162
 
Anyone. I'm trying to understand this. What's the idea behind selling/buying deep in the money calls? Let's say for instance, MU is trading around 45 today. The feb 30 contracts are going for around 16. If I were to write 10 contracts, I would be paid $16K. But then, there's a very high probability that my shares will be called away, even if the stock dropped down to 40 before expiration. Granted, I would have made an additional 6K. Or why would I want to pay 16K to have the right to purchase the shares at a later date. I understand that in this case, I'm not paying 45K to buy the shares outright, but if MU were to go to 50, then I would have made 4K. Am I understanding this right.

Any input would be greatly appreciated.
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