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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!
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To: pride who wrote (10808)5/18/1999 11:23:00 AM
From: Greg Higgins  Read Replies (1) of 14162
 
Pride writes:

i have questions concerning uncovered call writing. what are the risks?

About $20,000 in three days if personal experience is a guide.

sell an uncovered call on at&t for jan00-65
About $5 1/4 premium for 8 months with the stock currently around $60. Initial Margin is about $13. Not a bad return, but you're planning on setting aside enough money to buy the stock, hence the return is more like $5.25 / 32.50 * 12 / 8 * 100 = 25% annualized. T is much more volatile in recent times than it has been in the past.

I agree with you that T seem to be both over-priced and an unlikely takeover target (unless Bill decides to take on MCI/Worldcom directly).

Since you're willing to accept a 25% return, have you considered a credit spead? Sell the Jan 65 for 5 1/4 and buy the January 70 for 4 1/8. Since the spread is 5, you'll have to put up $500 margin for each option, but you're allowed to include the premium in that, hence your return will be 112.50/387.50 * 12 / 8 * 100 = 43% annualized.

On the other hand, it looks to me like the same 1 1/8 is available on the Oct 65-70 call spread for an annualized return of 112.50/387.50 * 12 / 5 * 100 = 69%. Hmmmmm.
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