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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: FruJu who wrote (6517)	1/21/1998 8:16:00 PM
From: Spots	Respond to of 14162

Well, the general rule is sell premium and buy intrinsic value. According to my quotes, the Feb 10's are 3 1/2 x 3 3/4 bid/ask with an intrinsic value at the close of 3 7/16 (13 7/16 close minus 10 strike). That's a premium of 5/16 if you pay the ask. The March 12.5s are 2 1/2 x 2 5/8, which is a preemie of 1 1/16 if you get the bid. If you rolled there and got called out, you'd get 12.5 for the stock, 2 1/2 preemie for the 12.5s, 2 5/8 preemie for the 10's now in your pocket, less 3 3/4 for buying back the 10s. This totals to 13 7/8, versus 12 5/8 if you let your 10s get called. Your commissions will affect this of course. If you don't get called, you've got your 2 5/8 + 2 1/2 - 3 3/4 = 1 3/8 PLUS whatever the stock's worth over 10. Either way, if the stock ends up at 11 1/4 or better in March (plus commissions), you're ahead by rolling; if it ends up below that, in Feb., you're ahead by holding. Of course in that case you could improve by selling more CCs in March, assuming your Febs expire or you buy them back nearer expiration. Should you do this? Only you can decide. But these are the numbers to decide with, unless, of course, I made a bad math booboo. Don't trust me; check it yourself! Regards, Spots