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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: Bobby who wrote (6064)	12/9/1997 4:53:00 PM
From: RayV	Read Replies (1) \| Respond to of 14162

TECD up again. Anyone know why? Ray

To: Bobby who wrote (6064)	12/10/1997 10:54:00 AM
From: Greg Higgins	Read Replies (2) \| Respond to of 14162

Bobby writes: IF I a write a 6 month out CC, and the stock price reaches exercise price + premium + commissions, is there a good probability that the stock will be called away or will end up having to hold the stock for 6months? Again, new information I have seen says that a call should never be exercised early unless 1) the stock pays a dividend 2) the stock is above the strike price 3) it is immediately prior to ex-dividend 4) the present value of the dividend is greater than the risk free interest which can be earned on the strike price. If all of the above is true, then the owner of the call gets an instantaneous ROI boost by exercising and getting the dividend. This is true in a rational universe. Not everyone is rational. I can think of a few non price related reasons why a person might exercise early, for example to influence the voting for a new board, etc. Is there a way out this scenario - where you want the stock to be called away so that capital can be employed somewhere else. Out? Buy back the call and sell the stock. This is can be expensive. Usually, you're better of waiting to see what happens. A stock which goes up can come back down. Example, today CCI is 136. I sold JUL 130 for 14, I ould buy it back for 18 losing 4 and sell the stock for 136 gaining 8 for a net of 4. Note that 3 months from now, the same buy back will likely cost me 10. In that scenario, I buy back for 10 gaining 4 and sell for 136 gaining 8 for an overall gain of 12. The day of expiration, I could buy back for 6 1/8 gaining 7 7/8 and and sell for 136 gaining 8 for an overall gain of 15 7/8. This illustrates why I don't like ITM writes. If I had written at 125, I might have gotten 17 instead of 14, but I'd have to buy back at 11 and sell for 136 gaining 14.