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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!
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To: Herm who wrote (4497)9/8/1997 3:28:00 PM
From: John B.   of 14162
 
Herm:

Have you ever done a calendar bull spread?

The stock: ASMLF currently at $85.

The logic:

1. Buy one Jan 98 $75 call for $16 1/4.
2. Sell one Oct 97 $95 for $3 3/8.

Called out return = $3 3/4, assumes stock is at $95 on option expiration, plus premium of 3 3/8 equals 7 1/8.

If the option is not called then the sale of a Nov. call can be
considered.

Isn't this the same as a covered call except using another option
to cover? The hardest part would be when the Jan 98 option
begins to be near expiration. What is your opinion and/or experience.

If the Jan 98 option has not been called by expiration, the cost basis
should be lower than the stock price. In a worst case, the Jan 98
option could be exercised to avoid any loss on the option. Especially,
if you like the underlying stock.

Respectfully,

John B.
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