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: Herm who wrote (7601)	6/16/1998 8:24:00 PM
From: Joe Waynick	Read Replies (2) of 14162

Herm, if I'm short a stk and I buy a call option, isn't my position hedged? Unless the stk stayed flat, how could I lose in that situation? For example: 1. Short stk at $10 2. Buy 30 - 60 day $10 call option at $1 3. Stk flat - call option = $0 and I lose premimum 4. Stk goes up to 15 - flatten position by covering short and exercising call at 10 and I'm only out commission $ 5. Stk goes down to 5 - call option = $0, cover at $5, and keep $4 The way I see it, my total risk is the call premimum. If the stk is anywhere below $9 by expiration day, I make a profit. Can you or anyone else on the thread see potential risk that I may be missing?

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