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Strategies & Market Trends : Tech Stock Options
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To: donald sew who wrote (37708)3/30/1998 8:25:00 AM
From: Joseph Francis Torti  Read Replies (3) of 58727
 
Hi Can anybody help me. I am trying to understand covered call
option writing.
Please let me know if the below example is right or wrong.

I have 300 shares of Compaq at $30.00 And I want to limit
my lost by writing, 3 contracts of July 30 covered calls selling
this morning for a premium of 1 11/16 total $504.00
My lost as of this morning
if I bought the calls would be around $500.00 If the price
stays the same at $26.50.
As I understand it, if the price goes up to $30.00 or more
I would get my loses back but may lose my long holding because
the stock price hit the $30.00 strike price.
Now if that was to happen Would get my loses back but would
lose the 300 shares of my long on Compaq. If this was true
then my total capital with the stock being call would be.
$504.00 premium for 3 calls + 9,000.00 for 300 shares of long
being called back. Total 9,504.00 minus any commission.
Is this example correct.
If this example is correct then I would have a profit of $504.00
and be happy just getting my damn money,back I don't care if the
stock goes back to a hundred.
My other question is what if my 3 contract of covered called
does not get to $30.00 by the July expiration date. Do I have
to buy it back or just let it expired. Would I lose the $504.00
premium I received for the covered calls if I let it expired
without buying it back? If I could do this, would I save money
not buying it back and not paying the commission on the buy back?
Correct? Yes or no? Any help or reply in making me
understand this once and for all would be greatly appreciated.
Thanks Joe T. in R.I.
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