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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Jerome who wrote (48698)	7/3/2001 9:53:52 PM
From: Robert O	Read Replies (1) \| Respond to of 70976

Jerome help me understand what would happen in this scenario: AMAT is at 50 and you sell an OCT. 65 covered call for say $3.00 on 300 shares (these are 15 points out of the money). Since much of that 3 is time premium, imagine that monday AMAT gaps up 4 points to 54. I agree that the call price will not move in lockstep with the stock price but since there is still the time premium what can we expect? Say the call is now valued at 4.50 and amat continues to climb during the subsequent weeks and months. Assuming you are perfectly hedged haven't you eaten into your upside profit that would have resulted had you just held long? Your still 'up' 1.50 as of Monday but that may disappear and become a loss even in the first week. Granted that options value tend to deteriorate quite quickly over time in any event and its a bonus in a sideways or falling market (if writing calls) but AMAT can, and will, be explosive once again as money mangers pay nigh any price to hold the darlings once the all clear sign is sounded. And therefore never send to know for whom the bell tolls; it tolls for thee. RO