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

To: JohnM who wrote (810)	5/26/2001 5:09:47 PM
From: Dr. Id	Read Replies (1) \| Respond to of 5205

I now wonder, then about the following. I had thought I would not be likely to be called on my sale until NUFO reached $16.30 ($15 striking price plus $1.30 option premium). I now believe that once NUFO moves above 15.25, there is some unknown possibility and a strong likelihood at expiration. Is that right? John, You seem to be confusing what you are getting for the stock (if you sell a 15 for $1.30, you are in essense receiving 16.30 for the stock upon exercise of the option) with the strike price. It's pretty simple...if the stock closes 1/8 of a point above your strike price (15), you are likely to be called away. You CAN be called away if it finishes exactly at 15 (it happened to me) but not likely. However, if you are called away at 15 or 15.125, you have made a profit as you basically sold the stock for 16.30. Called away or not, you subtract that 1.30 from the cost basis of your stock, as it's now in your pocket. Hope this clarifies it for you, Id

To: JohnM who wrote (810)	5/26/2001 5:31:25 PM
From: BDR	Read Replies (1) \| Respond to of 5205

<<I now believe that once NUFO moves above 15.25, there is some unknown possibility and a strong likelihood at expiration. Is that right?>> Count on it. Expect it. It will happen. Between the brokerage firms and the option exchanges they have systems in place that make exercise of in the money calls virtually automatic. You will in all probability get called out if NUFO is anywhere above 15, although transaction costs, low that they may be for insiders, may prevent exercise at 15.05 or even 15.10. That is why McMillan, et al., talk about profit being capped for covered call writers at the strike price. At anything above that price you will be called out and forego further stock appreciation. This is a very important point to realize and if you are not comfortable with the concept in general, don't do CC writing. If you are not comfortable with that prospect in the case of an individual stock at a particular point in time, hold off on writing calls. <<Should the strike price be in the money as expiration time approaches, I need to consider buying the option back.>> That's one option (foregive the word choice). You can roll out, up, or out and up as expiration approaches. I was mulling over my choices with regard to QCOM as the May expiration date approached in this post: Message 15817350