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

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next

To: Herm who wrote (10478)	4/22/1999 1:01:00 AM
From: NateC	Read Replies (3) of 14162

Herm....you continue to amaze me. I thought I was getting it...after several weeks/months on this thread...and you keep on teaching us all this good stuff. I've heard about the BE before...but you posted this: That CC break-even (B.E.) is calculated by the strike price + actual premie collected. So, in the example of a $25 CC strike + $2+ premie= $27 is the cutoff for you to decide to cover (perhaps at a loss) or buy some long calls as a sideshow to regain control. Of course, you are using some of the CC premies to do that..... and I'd like to ask a question about the CC B.E. If you bought an underlying at 22, and sold the 25 call...say 1 month out....for $2. Your breakeven would be 25+2, or 27. However you own the underlying...so with the stock at 27...you've made 5 points on the underlying. Now you've collected $2 worth of premie..but if you don't repair...you're only going to get $3 worth of runup on the underlying...to 25..and you'd keep your premie of 2...so your best profit position, with the stock at 27....is $5...if exercised. Since 27 is your BE position, WINS tells us to buy back at that point...so we spend maybe $3....(since the 25Call is ITM.....)to buy it back. We now have the underlying at 27, and the full 5 on the runup.....but we've spent $3 in buying back.......so we have a net $2 on the underlying...plus our original $3 premie....for a total of $5....It's the SAME, it seems to me...and it keeps coming out that way. Now if the stock goes up to $30....if you didn't buy back...you still make $5....And if you did buy back....you'll get the additional runup to $30...in this case $3 more. BUT....and I just learned this one the hard way with Schwab.....when you repair....the stock can tank...and if you didn't buy protective puts...you're screwed.!! Is there more to the math of the breakeven....because it doesn't seem to make you any more money...than just getting exercised...unless somehow you KNOW the stock is going further up.

Report TOU Violation

Share This Post

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next