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 (8107)	8/6/1998 9:56:00 PM
From: Vol	Read Replies (1) of 14162

<< In a LEAPs CC setup, if you are called out of your CCs your LEAPs will automatically be exercised at the CC strike price. The difference between the CC strike price you wrote is subtracted from the LEAP strike price and you get to keep the difference. So, your LEAP Strike is at $10 and your CC Strike is at 12 1/2 you get $12 1/2 - $10 = $2 1/2 to keep plus the CC premie(s) you collected along the way. >> Correct me if I'm wrong, but I think your broker gives you an option on how to deliver stock when your short calls are exercised. If you just handed over the LEAP in this example, you would about break even: Premie - cost of LEAP + difference in strikes in calender spread = profit 1.25 - 3.5 + 2.5 = 0.25 (commishes not incl) I think a better return might be to buy the stock at current price to cover short call and sell appreciated LEAP to get some of that extrinsic value that you paid for back. Make sense? Vol

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