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Technology Stocks : Intel Corporation (INTC) -- Ignore unavailable to you. Want to Upgrade?

To: Amy J who wrote (178872)	7/25/2004 2:25:46 PM
From: GVTucker	Respond to of 186894

Amy, RE: Consider writing deep ITM covered calls, expiring 2+ years out. Say MSFT Jan 22.5 2007 (currently at $8). The time premium is 22.5+8-28 = $2.5. If you don't get called, you get $3 dividend. How is it not better than regular covered calls? Or, is the $3 drop in stock price after the dividend is paid out is accounted for in the premium of the option price? You probably won't get called early with '07 calls. Think of the person on the other end of the trade. Why would that person want to exercise a call early that 2½ years of time premium? Run the numbers. If you buy the stock and sell the 22½ calls, you'll get a little bit more than the risk free rate, which is about right. There almost never is a free lunch in the markets, especially the options markets where there are a lot market makers who make a living arbitraging small differences like the ones you're looking for. A good rule of thumb: if you can't understand why an intelligent person is taking the other side of a trade, odds are you aren't thinking hard enough or you don't understand all the permutations of a trade.