tcmay, RE: 2. Disincentive to sell if the shares are being held as the covered part of the CC. For example, collecting the $2 for the JUL20 and sitting on the shares until the expiration, even as Intel falls to $12. (As could also happen, e.g., if the War on (Some) Terrorists goes badly in Iraq, with "Blackhawk Down" types of hand-to-hand fighting in Baghdad, and the estimated costs balloons up to $200 billion or more.)
The disincentive goes the other direction, too.
Let's say, for example, that an Intel holder in August of 2000 wrote some 65 Oct calls when the stock was in the low $60's. In that same month, the stock reached more than $75. A holder who might ordinarily sell above $75 might hold and wait to sell until those Oct calls expired.
By the time those Oct calls expired, though, the stock was under $45. And even if Intel performs very well from now on, you most probably won't see $75 for anther decade and a half. |
