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

To: Uncle Frank who wrote (930)	6/6/2001 9:41:44 PM
From: JohnM	Respond to of 5205

Thanks, Frank. The difference between my 3.5% and your 3.8% is, surprisingly (to me), the commissions and the scale. I included them and calculated on the basis of only one contract. John

To: Uncle Frank who wrote (930)	6/6/2001 11:09:03 PM
From: adairm	Read Replies (1) \| Respond to of 5205

There you go again, putting on one of those high stress trades! <Actually, my plan is to buy back this call should sebl dip at any time over the next 6 market days.> Gee, I hadn't thought about how close we are to June expiry. Do you count trading days or calendar days in your rate of return calculations? Here's what I like about selling near term options: As expiration approaches, the decay in time premium accelerates. Using your 6 days, at the end of the day tomorrow, the time value will have eroded by 1/6. The following day, 1/5. The day after 1/4. And so on... I know the Black-Scholes formula has a square root in it, and I haven't bothered to try to work it out, all I know is the time value drops faster as we get closer to expiration. I hope this trade works out for you, but I find it kind of perverse to be rooting for a stock you own to go down in price! (Kinda like Warren Buffet wanting stocks to go down because he is a 'comsumer' of stocks! I'm not entirely sure I get it. But that's probably why he's got the money and I don't!) Adairm

To: Uncle Frank who wrote (930)	6/7/2001 12:41:53 AM
From: Sully-	Respond to of 5205

I'm not sure what the consensus thinking is, but if you are not called, isn't your return 6.1%. Does it matter what the value of the stock is at expiration, at least for ROI & cost basis purposes? <<Buy 100 sh. sebl at 51.15 = -$5,115 <<Write 1 contract of June 50 @ 3.10 = $310 <<If called, sold 100 sh. sebl @ 50 = 5,000 <<Return = (5000 + 310)/5115 = 3.8% Return if not called = 310/5,115 = 6.1% If you bought @ $51.15 & the shares aren't called at expiry you officially pocket 6.1% of your original purchase price. For my purposes, I would calculate my new cost basis & base any future CC writing on the new cost basis as I move forward...... which would now be $48.05. FWIW, I figure in all my trade costs to keep my new cost basis straight. At least that's how I look at it. Ö¿Ö