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: phillip who wrote (10918)	5/27/1999 4:50:00 PM
From: Dan Duchardt	Read Replies (2) of 14162

Have you seen the huge CC that took place yesterday in PPE? Someone had to be on the other side of this! Looks like the calls went for 7/8 and the puts for 5/8, so the seller got 1_1/2 in premiums and accumulated most of the stock around 10_3/8 to 7/16, so let's say his NUT is 8_15/16. If the stock goes up, the puts expire, he gets called out, and he makes 15% (no-margin). If it goes down the calls expire and he gets more stock put to him at 10 so he winds up with twice as much stock at an average cost of less than 9_1/2, and gets to sell one or both sides of the options all over again. I think it's fair to say he's looking for he stock to go up, if not this month then soon thereafter. The straddle buyer is in for 1_1/2 and needs to see a move of about a point in either direction to break even, or have the courage to leg out on smaller swings. That doesn't look too improbable, but who's to say there will be a market to sell all those contracts? Is he really thinking in terms of letting these things run through June, hoping the stock will make a 15% or more move somewhere along the way so he can exercise the options on one side or the other? Just trying to understand the motivation here. If you had the money to open such a huge straddle position, what would make you do it?

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