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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 (13073)	7/20/2000 8:59:35 AM
From: Jonathan Thomas	Respond to of 14162

<<<< And you were overlooking the fact that although your calls expired, your puts are now in the money and you have a loss on them. >>>> No, I have not. BP, consider it ONE large position. I used the purchase price instead of the put price, so I was mistaken a little in my calculations. Your breakeven if you had to buy the puts back is 8 3/16, that was my miscalculation, but the theory is still sound. ONE option will always expire worthless, and you USE it as protection on the other side of the strike. So, assuming you sell the calls and puts for the same price, you essentially double your protection (although not necessarily your profit potential, but it can happen) but using both options. I'm not sure how else I can explain it. So, who cares if you have a 3, dollar loss on the puts. You are guaranteed the call premium, and are protected against much larger movements in the stock, on either side, with less risk than straight CCing, and a lot of extra premies. You still make money on a 3 dollar drop in the stock (due to the 4 5/16 received in premiums), now you do it again next month. For extra protection, you buy the 10 or 7.50 Put. Once you are in, look at the entire position, don't focus on what happens with each call and put option individually. Ryan