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: Herman J. Matos who started this subject	6/19/2001 10:49:47 PM
From: Brad Griffin	Read Replies (2) of 14162

I need some help understanding what happens when I buy a ITM Put as part of a hedge wrapper option play. The example displayed on Coveredcalls.com today is a good example. PSFT $39.65 Sell July 40 $3.60 Buy July 35 (2.05) Net Prem = $1.55/39.65 = 3.91% return for 30 days If the stock price is at $30 2 to 3 days before the options expire I would exercise the put and put (or sell) my stock to someone for $35. Then I would be loosing $39.65-1.55-35 = $3.10 per share. Is the above paragraph a true statement as to what happens when your stock tanks and you have protected the magnitude of your loss by buying a put option.

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