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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: JohnM who wrote (1199)6/26/2001 12:11:58 AM
From: BDR  Read Replies (1) of 5205
 
If you sold July 55 calls and QCOM went to 70 you will have a difficult time rolling up. You can roll out (to the next month) but rolling up and out may cost you. Look at the situation someone is in now who sold July 40 calls, i.e. ones that are already about 15 in the money.

He could buy back July 40 and sell August 40 (roll out) = 15.50-15.10 or a net credit of 0.40. Sure he picks up another 0.40 cents but he is still 15 in the money and his commissions will probably take much of your gain on the trade.

He could buy back July 40 and sell August 45 (roll out and up) = 11.60-15.10 or a debit of 3.50. This is just bleeding to death slowly. He would have to go out 3-6 months to find a higher strike price that he could sell for more than what he will get for the July 40 and now he is trading options just to keep from taking a loss and not for extra income or to hedge his position. Not his original intent I presume.

He would be better off to either take his loss by buying back the calls or forego the gain by letting the shares get called. He would be even better off if he had taken corrective action before you got that deep in the money.

Dale, who has broad, personal experience in a wide variety of ways to lose money. (g)
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