AR,
As I understand it, isn't a CALL where you 'commit' to sell a stock at a given price, say $100. If the call is exercised, you sell the stock. Is this right so far? Assuming this basis - let's see ----
If the stock goes 'down', the 'calls' probably won't be exercised, and you get to keep the money for the option.
If the stock goes 'up', the only money that you lose is the difference in the price of the 'call price' say $100 and the current price, say $105. You you 'lose' say $5 per share minus the say $1.50 per share option price, or $3.50 per share. Isn't this a 'lost opportunity' amounting to $35,000 on 1000 shares? Can't you 'lose' the same money by just 'selling' the shares at $100 and buying them back at $103.50? On the other hand, if the stock does go 'down', you can replace it more cheaply at say $95.
The real difference, I suppose, is that if the stock goes 'down' and the call is not made, you don't have to pay the capital gain 'bite' that would be due on the stock sale.
Look real carefully at the numbers - long term - before you take this action.
Regards,
Ken |
