That's easy... The time value will erode to nothing on March 20th. It will start eroding noticably about March 1st-8th.
What you're really asking (or should be) is "How long am I probably going to have to wait before I can buy this call back?"
That's a tougher question. What Herm normally advises is to sell calls when the stock is on the upper bolinger band and ready to come down. This causes the premium to erode very quickly not because of the passage of time, but because the call becomes further out of the money. By doing a buy-write, you've eliminated this opportunity for yourself. A drop in the stock now would hurt because it would fall below your nut much sooner, and you'll need your cash to cover margin rather than buy back calls you've written.
Another problem with your trade was that you've written a fairly long-term call, as covered calls go, and especially for this VVUS. By March, it could be back in the 30+ area, or at least the high teens. Yes, after getting called you'll have gotten a 27% return in three months, but you might miss out on a fair bit more. Since today is the December expiration date, you should have waited until Monday, and written a February call instead of the March call.
You can just sit and wait and collect your 27% in March if VVUS recovers by then. If you have money, you might want to invest in something else in the meantime. If VVUS drops enough, and the Mar 12.5 drops too, you might want to buy the calls back if you can cover your commissions without taking a loss. Patience and a weak market will probably oblige you before the year is out.
When I first started, I did a few buy-writes right away. I did pretty good too; I was up some 30% within a month. The next round I picked some bad stocks, and quickly lost more than my premiums. After I found this list, I've been doing better. I still lost lots of money recently, but the knowledge and techniques I've gotten here helped me put together a position which will prevent me from getting anymore margin calls while I wait for my main holding (CREAF) to recover. When it does, I'll be well on my way to winning back all my losses.
Doug. |
