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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!
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To: Greg Higgins who wrote (6029)12/7/1997 12:24:00 AM
From: Matthew B.  Read Replies (1) of 14162
 
<It's very close to the point at which it becomes a no-brainer for the marketmaker who bought the call to exercise it, however.>

Have you found it to be the case that calls get exercised early? With puts, I guess the put buyer who owns the stock would exercise so that he can use his capital elsewhere. With calls, buyers would primarily be speculators, and it would make sense not to exercise and buy the stock but to sell the call (which may include some time premium left). It would seem calls would mainly be exercised on expiration.

<It seems to me that the greatest benefit from covered call writing doesn't really begin to appear until after you've owned a stock for 5 or so years.>

So pessimistic? I would have thought the flexibility of options allows you to fine-tune whatever strategy you have. e.g. Dell now at ~93. The May 115 Call is at 6.88 (ie. 7.4%). If one gets exercised one make 31% in 5 months. That's a pretty good rate of return. If the stock goes down, you are still in a better position because you still have 7.4% to show for it. I guess the name of the game in call writing is trying to guess where the stock will be in 3 months say and selling the call just above that price.

Matthew
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