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Strategies & Market Trends : The Covered Calls for Dummies Thread -- Ignore unavailable to you. Want to Upgrade?

To: BDR who wrote (213)	4/24/2001 4:44:58 PM
From: Uncle Frank	Read Replies (2) \| Respond to of 5205

>> If one is just writing calls for income one might not feel the need to do the calculation, but, since I am capping my return, I like to know how much I am limiting my gains by doing so and compare that to my expectations for the stock over the same time interval. That's the very reason I use the "constant cost" basis in my computation. After each contract is closed I want to evaluate the return to see if it was productive. Let's take an example. Sold 40 strike cc's for 10 when ABC was at 35. ABC was at 48 at expiry and the stock got called. If I had not written calls, the return for the contract period would have been (48-35)/35 = 37.1% Writing calls, my return was (40-35+10)/35 = 28.5% Using this method, it is clear that I would have done better by not selling the calls, but your recommended calculation would have yielded a result of (40-(35-10))/25 = 60% indicating it was the superior approach even though less money was returned. uf.