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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: FaultLine who started this subject1/17/2002 5:30:33 PM
From: rydad  Read Replies (2) of 5205
 
Ok, to complete my education for today.....I called my brokerage, and asked them about calendar spreads ( buying the LEAP and writing a call on it) and this is what they told me ( in my own words):

When your call reaches expiration if your call needs to be exercised, if you don't own the shares, you will need to buy the shares at the market price. OR if you have bought the LEAP you can exercise it and buy the shares you need that will be called away. Either way, you need to get up and do it yourself. It is not automatically done like when you do a covered call write and you own the shares already.

Now here i am speculating: If I bought a AMAT LEAP (Call?) Jan 45 (2003) at $7.90 then sold a call for Feb 45 for $1.20. If at Feb expiration, AMAT is at $45+ I will get called. Then I can exercise my call and buy AMAT at $45 which will then get called and sold.

Does this sound right? Can someone please set me straight if I am incorrect.

When I think about it, something is weird... I have already paid $7.90 for the LEAP and now I must pay $45 for the stock, so getting exercised costs me $7.9 + $45 = $52.9. But then I am selling it for $45 as it gets called away, right?

I assume that exercising the LEAP means selling it back. So maybe I get approximately the $7.9 (or more?) back when I sell it?

Sorry to be so confusing, I thought this was an interesting subject this morning!
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