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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: Dominick who wrote (4198)4/15/2004 4:57:22 PM
From: Jon Khymn  Read Replies (2) of 5205
 
Dom, Here is my simple(dummy) way of thinking RMBS and CC.

1. I am going to hold RMBS for few years

2. Let’s assume the following: buying 1000 shares at $28.

3. Write 10 calls at $1.75 every month. (let’s simplify more, $1.50 instead of $1.75 and just 10 months instead of 12 months– the premium may not stay this level but let’s just assume it will in the future)

4. Then I would collect $15 premium in one year. Which means even if RMBS stock price drops to $13, I would break even. On the other hand, if the stock remains same or goes up, my return will be $15 or about 50%. (Even if the stock goes down to $20, I would still net $7)

Any comments?
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