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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study! -- Ignore unavailable to you. Want to Upgrade?

To: Matthew B. who wrote (6042)	12/7/1997 10:32:00 AM
From: Greg Higgins	Read Replies (2) \| Respond to of 14162

Matthew B. writes: With calls, buyers would primarily be speculators, and it would make sense not to exercise and buy the stock but to sell the call (which may include some time premium left). Well, the open interest in CCI JUL 130s is 19. That means there are 19 contracts in existence. The buyer of my calls was not a speculator, but a market maker, and market makers are even more risk adverse than I am. If the calls are still with the market maker, and they probably are with a market this thin, I think I get exercised at strike + premium + commissions + X. What's X? maybe X is daily trading range, who knows. I can't imagine it to be that large. Now in a heavily traded market, and perhaps in my case also, the market maker turns around and sells the calls to a speculator making the spread with no position. In the heavily traded market, it seem to me the market maker will resell the same contract. In the thinly traded market, it seems to me the market maker is much more likely to write a new contract for the call buyer, retaining both the long call from my position and the short call from the call buyer. These are then hedged.