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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: Uncle Frank who wrote (4538)10/25/2006 12:21:05 PM
From: Bridge Player  Read Replies (2) of 5205
 
<< Do you hope to let the option expire, or will you close the position early?>>

That's a great question. Historically, I just let them expire worthless. But I have read a lot, here and elsewhere, that says that if you can close early with 85-90% of the maximum possible gain, go ahead and do it. As I understand the theory, the small amount of extra possible gain is not worth waiting for, because of the possibility of a sudden reversal of the underlying that might even put it in a loss position. And I have seen that happen sometimes, the most recent being on the AMAT Oct 18 puts which went from .05-.10 to in the money when the book-to-bill came down and AMAT dropped about 1.50 or so.

And, of course, the freeing up of margin to enable possible new positions.

I struggle with this, because psychologically I just love to enter that "EXP" on the Schedule D spreadsheet.

I think I have to work on this :))
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