re Aug 95 calls.
bachman's primer on DELL options.
1) Never, (as in NEVER) write DELL calls which extend through or immediately up to an earnings report.
2) If you write a call on DELL, always write it Out-Of-The-Money.
3) Any time you write a call on DELL, expect it to be in the money at expiration.
4) Any time you write a covered call on DELL (or any stock) you have strictly and absolutely defined your profit potential to be STRIKE plus PREMIUM less COST BASIS. In return for hedging your downside (by reducing your total cost) you limit your upside.
Now Walt... Your Aug 95s are virtually certain to be in the money at expiration. Remember, that is okay. You wrote them, thinking "If DELL goes to 105 by August, that is enough return."
Your choices now are thus: do you want to keep your DELL longer to qualify for long-term capital gains, or are you willing to settle for the profit you have made. Remember: You have already cashed in some profit. DELL has had a phenomenal run-up, and it may well pause or dip after the earnings announcement. If so, that would be your chance to buy back, though probably you would have to give back some or all of your profit, perhaps even take a short-term loss. Otherwise, you can wait until the Friday of expiration, when the remaining time premium of the calls you wrote is zero, and buy the calls back. You did cash in >$10 of time premium, no es verdad?
Hope that helps.
PS. On your brokerage slip, recording the sale, you should be able to find the expiration date of the calls. Last trading day will be the 3d Friday in August.
Regards, 3. |
