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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: alanrs who wrote (3843)7/18/2002 9:03:45 AM
From: Andrew N. Cothran  Read Replies (1) of 5205
 
Alanrs:If you go back for the past year and study QCOM options at expiration dates you will discover that invariably, the price of the stock tends to move-hover-stay close to the strike price closest to the share price WITH THE HIGHEST OPEN INTEREST. I put it this way because there are always many options with open interest that are expiring on any given expiration. The really out-of-the-moneys are no problem for the covered call writers (mostly big insurance-mutual-hedge fund managers). It is that batch, with a strike price closest to the stock price that the market goes after. They, of course, want it to expire worthless so that they can pocket the premium and keep all of their stock. Then they are ready to sell again into the future.

Again, I invite you to go back and look at the stock price/options strike prices/open interest/on any given expiration date. You will find movement TOWARDS the option with the greatest open interest and closest to the current strike price.

I have played covered calls on QCOM this way for some time now and have (except in one small instance and for 10 cents) managed to keep the premium and also the stock.

I am short the July 30's. I expect the same pattern described above to prevail.

Of course, I could be wrong.
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