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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: Uncle Frank who wrote (930)	6/6/2001 11:09:03 PM
From: adairm	Read Replies (1) of 5205

There you go again, putting on one of those high stress trades! <Actually, my plan is to buy back this call should sebl dip at any time over the next 6 market days.> Gee, I hadn't thought about how close we are to June expiry. Do you count trading days or calendar days in your rate of return calculations? Here's what I like about selling near term options: As expiration approaches, the decay in time premium accelerates. Using your 6 days, at the end of the day tomorrow, the time value will have eroded by 1/6. The following day, 1/5. The day after 1/4. And so on... I know the Black-Scholes formula has a square root in it, and I haven't bothered to try to work it out, all I know is the time value drops faster as we get closer to expiration. I hope this trade works out for you, but I find it kind of perverse to be rooting for a stock you own to go down in price! (Kinda like Warren Buffet wanting stocks to go down because he is a 'comsumer' of stocks! I'm not entirely sure I get it. But that's probably why he's got the money and I don't!) Adairm

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