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Strategies & Market Trends : Three Amigos Stock Thread
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To: Amigo Mike who wrote (451)2/5/1998 10:18:00 PM
From: Ken W  Read Replies (1) of 29382
 
Mike,

If I may be so bold as to add something to your post to Joe. Joe mentioned "just selling the call for the premium." This is correct Joe.

You can also "write covered calls". This means that you already own the stock. By selling the calls at a strike price you are allowing someone to buy your stock at that strike price. You collect the premium outright in cash. If the underlying stock goes up the call price follows and often times increases at a faster rate than the stock.

If you do not get "called out" you still own the stock and keep the premium. 85 to 90% of calls expire worthless. I know people that have never been called out on a stock.

Basically, calls are traded just like a stock, warrants or LEAPS. Most folks never intend on owning the actual stock. They are riding the price of the stock for a much smaller capital outlay. Calls are risky in that they have a short life.

Mike shall we go into "in the money" etc.?

Ken W
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