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: Kmartin who wrote (9462)	1/15/1999 8:38:00 AM
From: Herm	Read Replies (1) of 14162

Hi Kmartin, Welcome to the forum! I need to ask you one question in order to correctly answer your question. What has me scratching my head is how did you find a one month out call option, a strike price of $25, in the money by $1 ($26-$25=$1.00), and selling at a premium of $6.00. Wow! A more realistic price would fall in the range of 1 1/4 to 1 5/8s since $1 point is the intrinsic value and the rest is divided between the time value and the volatility factor. The pricing of options is a very structured mathematical formula. After a while you will be able to gauge the price ranges of options in your head. So, Kmartin! I guess what you are asking is, will a higher strike price generate more profit if you are called out? Yes, if you are called out as you planned. The next question would be, did you want to be called out? The jist of this forum is being able to protect your downside while allowing your stock to appreciate without being called out and taking advantage of knowing the direction of the stock. Keep asking questions when you are not sure. There are no dumb questions when it comes to investing real money in the stock market! Thanks!

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