Yep, it is true that you could have your stock called away at any time, but in practice it rarely happens. "Option premium" is what keeps it from happening.
Just two days ago when Micron was at 70, you could sell a Jan 70 call was over two bucks. So let's say you sell that call. And the guy who buys the call exercises it. Now he's bought your stock from you at 70. Big deal -- he could have bought it for 70 on the open market, plus, he's out two bucks for the option. Ok, let's say the stock goes to 72. He can exercise the option and buy the stock from you for 70 and sell at at 72, and he's even. BUT his option, even with only a day or two to go, is probably worth $2.75 or so, and he'd be ahead just selling the option.
Even if he does exercise the option anyway, you sold your stock at 70 (to him) and got $2 for the option, so it's like selling it at $72. Heck, if the guy exercises it right away and the stock hasn't changed much, you can buy the stock back and write another option on it as well. Early exercise is usually a gift to the option writer.
As for which strike to write, it depends on where you think the stock is going to be in a few weeks. If you think it's going higher, you write a higher strike. But if you think it's going lower, you write a lower strike to capture some of the peak in the stock. Hence my scrutiny of the option page for late-day positioning, beginning...any minute now. :-) |
