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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!
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To: tiloup who wrote (6515)1/21/1998 10:31:00 PM
From: Greg Higgins  Read Replies (1) of 14162
 
Norman Damiani writes: On tuesday I decided to write the DEC feb 40 calls ... since the stock rose $4.5 for no apparent reason. .. Is there an optimal time to roll over?

First off, don't panic! The stock pays no dividends so you have little chance of being assigned early. If the bid collapses to (stock - call), or less, then you need to act quickly. The odds are significantly in your favor, though, that nothing will happen before expiration.

Three things could happen: 1) The stock stays the same. In this event the I think you are best waiting until expiration day to get the maximum amount of time decay and to pay the least for the rollover.

2) The stock could go down. No problem here. If the stock goes down, you're better off waiting until the day before expiration again. Hopefully it will go down to the point where you show a profit. If you see a profit, and you're uncomfortable with the stock, take the profit.

3) The stock could rise. If the stock rises and you've traded, the new month will be rising too, and you'll not have received much for your calls. I can't see any benefit to trading early and you might lose an opportunity to turn a losing proposition into a winning one.

All in all, I say wait until you either see a profit, see parity, or you must act due to expiration.

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