Actually, unless the stock really runs away, it is possible to write covered calls that would normally result in losing the stock, but roll it out to a future month.
For example, CYMI June 20 calls could pull a premium of 1 7/8, with CYMI at 20 1/2. This is a 1 3/8 time premium over the market price. This gives you a net credit of 1 7/8 and an upside "limit" of 21 7/8 for the CYMI stock.
When June 19th rolls around, if the stock is above 20, lets say its at 22, it could be called away. However, the time premium is effectively reduced to zero and the call is now selling for 2.
If you want to keep the stock, you can select another call, say August 22.5. These still have a significant time premium and will sell for about 2. Buy back the June 20 for 2, sell the August 22.5 for 2 and you "roll out" your position to August for the transaction costs. You still have a net credit of 1 7/8 and the upside "limit" is now 24 3/8 for the same CYMI stock.
Examples are estimates, but you should get the idea.
Enjoy the ride,
Ira |
