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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: JoAnn McCracken who wrote (6205)	12/20/1997 3:23:00 PM
From: Douglas Webb	Read Replies (2) \| Respond to of 14162

Here's the calculation I did: Buy 500 shares @ $12 1/8 = ($6062.50) Write 5 Mar 12.5 C @ $2 5/16 = $1156.25 ----------- Total Net Cost = ($4906.25) Per Share Net Cost = ($9.8125)/sh If you're called at $12.50: Net Cost = ($4906.25) Sell 500 shares @ $12.50 = $6250.00 ---------- Total Gain = $1343.75 Percentage Gain = $1343.75 / $4906.25 = 27% or Percentage Gain = $1343.75 / $6062.50 = 22% which is probably more accurate, since the premiums were used to lower your net cost (left on the table), rather than being put back in your pocket (taken off the table). Using margin affects the percentage return considerably, and the total return slightly. It depends on how much margin you actually use. If you bought all 500 shares entirely on margin, then your real cost isn't $6062.50, it's whatever margin interest you pay over the life of the position, probably ~$150. In that case, you can say you've got a 900% gain in three months! But, there's not much point in messing with the numbers this way, since it doesn't affect how much cash ends up in your pocket. For that reason, I ignore margin except for subtracting the interest from my total gain, and trying to avoid margin calls. Doug.