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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: Eric Berry who wrote (1329)7/4/2001 11:55:23 PM
From: William  Read Replies (2) of 5205
 
Hi Eric -

Let me address your questions.

1. To roll an option forward you buy back the option you wrote and then you write a new option. This is actually 2 transactions and involves 2 commissions. Note that if you are working with a broker, not just doing online trading, you can most likely do this in a way where you could specify a net difference in premium but I think it still involves 2 commissions.

2. An option assignment is when the party that bought the call that you wrote exercises that option, in your case buying 100 shares of CSCO at $20. Your net would thus be $1955 for 100 shares of CSCO.

3. You get out of a covered call by buying back in the open market. If you choose not to get out, the option will either expire worthless or be exercised.

Now I would like to make a couple of comments to Eric and to others new to this game. PLEASE PLEASE understand how the game works and what the rules are before playing. Don't buy or sell options until you understand what you are doing. You are given a booklet and have to say that you have read it and understand it before anyone will open an option trading account for you. READ THE Field MANUAL!!! In Eric's case, he sold a CSCO call for $0.65. This means he gets $65 minus about $28 commission. If he closes it there is another $28 commission. That's 9 bucks. If the call is exercised, $45 for the exercise, $28 to sell the call on a $65 premium. Skip the option, put in a limit order to sell at $20.

Folks, this is a great thread. You can learn a lot by reading here. You can make money using the ideas presented here. But folks, Rule Number One is Know What You Are Doing. Rule One applies. Mister Market and the options Pros will see to it that you loose enough when you do know what is going on. Don't make it worse by playing before you understand what the rules of play are. Ask questions. Any and All questions. You will get answers. That's why this thread is here. But don't throw money away until you know what is going on.

William
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