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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: Bridge Player who wrote (13065)	7/19/2000 11:50:28 PM
From: Jonathan Thomas	Read Replies (2) \| Respond to of 14162

BP wrote <<<< Lets see now. On the long stock with covered calls, you paid 12 1/16 for the stock and sold October calls for 2 1/4. That makes your cost basis on the stock 9 13/16, so at 7 3/4 you would be holding the stock with a net loss of 2 1/16. On the naked puts, you sold the October 12 1/2 for 2 1/16, and thus, after assignment at 12 1/2, own more stock at a cost basis of 10 7/16. So at 7 3/4 you would hold this stock with a net loss of 2 11/16. >>>>> Hey BP, First, count the entire position, not each individually. You had to shell out 12 1/16 to buy the stock. Money spent. Then, between the calls and the puts, you RECEIVE 4 5/16 in option premium, your cost of ownership is now 7.75, does that make sense? So, anything above 7.75, you can buy back the PUT at expiry, and the rest is profit, free to write the next round of calls and puts. The call will simply epire worthless. These are separate trades that account for ONE overall position in the stock. You were simply missing that with puts and calls, ONE side is always guaranteed to expire worthless in your favor, because the stock will always be on one side or the other of the strike. I suppose you could get freaky lucky, and if the stock was at 12.50, you keep everything...:) Do you get the whole transaction sequence? Ryan