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

To: Eric Berry who wrote (1334)	7/5/2001 8:29:50 AM
From: FaultLine	Respond to of 5205

Hello Eric, Welcome aboard -- I think you'll find you have come to the right place. If not assigned, I make $220, and have 200 shares of stock. If assigned I sell 200 shares for $2000 - $45 Assignment fee - $30 Commission to close option - $12 Commission on stock = 1913 (for a loss of $23 + my $220 premium)?? You just about have it right but I think the "If Assigned" case needs a little adjustment. In my opinion, the $45 assignment fee covers the entire cost of closing the position so the $12 and $30 charges you listed are not necessary. This raises the final value to 2000 - 45 = 1955 for a profit of 1955 + 220 - 1936 = 239 which is about 12% on your $1936 investment in six weeks -- certainly can't kick about that. I personally recommend you take 50 bucks of your profit and buy McMillian (see thread header). Read chapters 1-3 -- these quickly ramped up my understanding of covered calls. Cheers, --Ken/dfl

To: Eric Berry who wrote (1334)	7/5/2001 9:24:07 AM
From: Stock Farmer	Respond to of 5205

Hi Eric - I suggest you call your broker and get that "Assignment Fee" fully explained. Maybe even have him walk you through that example of yours. Otherwise we'll all be tempted to "help" you in a blind-leading-the-blind kinda way. As a mathematical tip, you might want to look towards underlying stocks that are in the $20-$50 range, (as well as volatile, fairly priced, range-bound, great companies to own long-term, yada yada yada). This way, commissions are reduced as a percentage of your "business". John.

To: Eric Berry who wrote (1334)	7/5/2001 1:39:42 PM
From: Dan Duchardt	Read Replies (1) \| Respond to of 5205

Eric, This is in no way intended to dispute William's sound advice about learning before doing, but for you or anyone else testing the waters I suggest that as soon as you feel you want to put money on the line, find a broker with commissions that favor the small trader. I happen to use Interactive Brokers, where your 200 shares could be purchased for a fee of $2 and those two calls could be sold for a fee of $3.90. You will pay enough for learning the options game in the form of wide spreads, unexpected price action due to changes in volatility, option prices lagging the market, etc, etc without paying those healthy fees. I have no association with IB, other than as a customer, and receive nothing for mentioning their name. I just think that starting small is the way to go and finding a place where you can do that at reasonable prices gives you a better chance of becoming successful. It's also good if you ever intend to use more elaborate options strategies to have at least a small account where you can explore all the possibilities. Regardng LEAPS, I assume you are talking about doing calendar spreads using the long LEAP instead of buying stock. Generally that is a way of reducing your long side exposure and limiting your downside risk. With GX at these prices there is not a lot to be gained by doing that, unless GX drops another 40 - 50% in value. It can make a big difference for higher priced stocks. Many CCers do not have this alternative available, but if you can do it you can reduce your downside risk a lot. Dan