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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study! -- Ignore unavailable to you. Want to Upgrade?

To: robwin who wrote (13064)	7/19/2000 11:15:20 PM
From: hivemind	Respond to of 14162

When 100 ABC shares are delivered to the call holder, the obligation is satisfied and the deal is done. No further obligation exists on the part of the covered call writer, and no rights exist on the part of the buyer of the call. The debit existed as a consequence of having an open call obligation (as the writer). When the call is assigned (called), the debit goes away along with the shares, at the strike price. The actual assignment takes place the following saturday. hope this helps, hm

To: robwin who wrote (13064)	7/19/2000 11:28:15 PM
From: Bridge Player	Read Replies (1) \| Respond to of 14162

(Ignoring all commissions and interest on credit balance) 1. You buy 100 shares of stock at $50.00 per share and pay for it in full. You account balance now shows net equity of $5000, no credit or debit balance. 2. You sell 1 55 call for $800. Your account balance now shows net equity of $5000, with a cash credit balance of $800, as follows: Stock: $5000 + cash: 800 - contingent liability: -800 ----------------------------- Total: $5000 3. As time passes over the next 3 months, the value of the stock and the short option will change. But the $800 credit balance stays the same. At 4:00 PM Eastern time of the Friday before Saturday expiration (stock options expire on a Saturday), your account will now read: Stock: $6000 Cash: + 800 Short option: - 500 --------------------- Total: $6300 4. The following week after the stock is called away, your account will of course show $6300 in cash, the 800 cash and the 5500 that you received from the sale. Q1. The debit in the account will be a negative 500 at expiration, and stays there during the weekend (assuming that the sale shows in your account on Monday.) The liability disappears at the instant the stock is sold. Q2. Nothing is deducted from the $5500 in cash that you receive upon sale. You bought the shares for 5000; sold a call for 800 premium; sold the stock at 5500. You made $1300. You did good. BP.

To: robwin who wrote (13064)	7/20/2000 8:34:57 AM
From: Herm	Respond to of 14162

Hello Robwin, You contracted to sell the stock at $55.00 x 100 = $5,500 and that is what you will get credit remaining in your account. You lose the shares and keep the money. You also will get to keep the $800 from the call preemie you wrote (sold) for $8 less all the commissions for the exercised shares. That is yours regardless of what happens the stock. Once the preemie is paid to you it is same as cash in your account. So, in this situation the stock was worth $6,000 and you sold it for $5,500. The stock plus the CCs you collected was worth $5,500+$800=$6,300 which is better than the $5,500. That would be a profit for the call writer provided they did not care to be long and lose the stock.