No, you can't lose any more money by selling calls against your shares. All it could possibly do is limit your future profit if SPSN shares somehow become worth more than $2.50 each before the 3rd Friday of next January.
The opportunity may have passed anyway, however. I just looked and there is no longer anyone willing to pay $0.05/share for these call contracts ($5 per option contract). You can always try to sell them for $0.05, but whoever was on the buy side of my trade probably reconsidered. It could well be, however, that if you put in an order to sell at $0.05, someone would bite. Check with your broker how big the commissions would be, and check to make sure that they will never charge a commission larger than the proceeds of the sale. (Etrade guarantees this, but they charge $1.50 per contract commission in my account.)
For each 100 shares, you sell 1 call contract for $5. If you have 5000 shares, for example, you sell 50 contracts at $0.05. You won't get the full $250, because the commission of a 50-contract trade might be $100 or more. Once you've sold these contracts, it will prevent you from selling Spansion until the contracts expire in Janauary 2010. That's probably the downside of selling calls against your shares. If SPSN rose to $1.00, you might want to just bail out of it, but the fact that you sold calls would prevent it. So you have to wait until next January to sell your SPSN. That's fine with me, if some kind of re-org got the stock to $1.00.
Suppose SPSN goes bankrupt. In that case, at least you got $250.00 minus the commisision for your 5000 Spansion shares. OK, if you just sold it you would have gotten more, a little over $300.
Think of it as a dividend on a stock that might become worthless.
Petz |
