How To Write Covered Calls - An Ongoing Real Case Study! Message Board

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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!

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To: Pete who wrote (7537)	5/29/1998 4:23:00 PM
From: Herm	Read Replies (1) of 14162

Hi Pete, Welcome to the forum and for your question. No question is too dumb when it comes to real money! As you indicated, American Style Options can be called out anytime on/and or before the expiration date cutoff. So, why does it happen from time to time? Supply and demand dictates how many options are called out early. Example, 2,000 contracts open and 500 contracts are exercised. Yep, somebody going to get hit with the exercise which is done on a random chance system by the options clearing house. Most of the time, I would not worry about it since it works in you favor anyway. If you pre-selected the strike price and length of time for your CCs, who cares? You profit objectives were reached early and you can move on with the next round of CCs or stock selection. Generally, if you attempt to CC during a scheduled dividend payment record date or split record date, then you increase the likelyhood of being called out by the increased demand. Also, on a turnaround situation if you CC very early on (at a price bottom when the indicators are touching the lower BB and very low RSI readings) and there is a LARGE number of short interest (shares of stock shorted) then you shot yourself in the foot big time! You will be called out on the short squeeze stampede! Needless to say, you will be very upset with the lost profit in the stock as it runs away. Doug's recovery option spread at that point would be a CC killer profit maker.

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