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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: Mike Buckley who wrote (3773)5/30/2002 1:58:07 PM
From: BDR  Read Replies (1) of 5205
 
Sold at $.90, bought back at $.05.

Regarding the decision to buy back calls, I look at it as a matter of efficiency of the investment. In this case you can bank almost 95% of the potential profit in two weeks. You will only get another nickel by waiting another three weeks to expiration. Given that buying back removes the cap on any sudden appreciation in the stock that might occur and/or gives you the flexibility to write again, at either a lower strike or at the time of another run up in price, I think the .05 paid is worth it. Now, if it was only a week to expiration I might not bother to close out the position.

Of course the reason the call has dropped is because of the rapid drop in the stock's price. You and I have different approaches to Siebel. I am doing buy/writes at lower strikes and am not concerned about being called since I, unfortunately, have no capital gains in the stock to protect. Even so, writing the November 25 (3.60) and 22.5 (4.50) calls have not yielded enough premium to protect against the current drop. It was my intent in doing the buy/write to hold to expiration, but I would consider buying the calls back for the same reasons given above if the premiums erode much more. In two weeks the premiums have dropped 50% for the calls I sold. I will have to wait five and a half months to get the next 50%.
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