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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: JohnM who wrote (781)	5/24/2001 11:18:59 AM
From: Uncle Frank	Read Replies (2) of 5205

>> I would sell calls at a striking price of 10 for a premium of $4.20... Somewhere in the neighborhood of $14.20, I get in the vicinity of being called A 14.20 stock price doesn't mean you're going to get called. That number is only significant to the person who wrote a $10 strike option for $4.20 because it represents the maximum total revenue they could receive no matter high high the stock rises. Options are rarely exercised before expiry, they are simply sold to someone else. This makes sense if you consider that the holder would sacrifice any time premium encapsulated in the bid price if they exercised before expiry. Why would they exercise when they could make more money by selling the option, buying the stock, and pocketing the time premium? But all in the money options are exercised by an automatic process following expiry, so a nufo 10 strike June call would be be exercised on June 16 if the stock ended trading at 10 1/4 or above on Friday, June 15. Hope that helps. duf

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