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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: Techinvest who wrote (6523)	1/22/1998 7:16:00 PM
From: Greg Higgins	Read Replies (1) \| Respond to of 14162

Rob J (Techinvest) writes: My net on ASYT is 31$ and I sold the 22.5 feb when the stock was around 20 a few weeks ago, now record earnings come in and the price pops to 26+, if I let it get called I lose 8 1/2 per share.What do you think would be the best way out of this situation? First off, relax. The odds of you being called out at this level are very, very small. It's 5:40 p.m. central standard time as I write this, the market is closed. Look at cboe.pcquote.com this shows how the market closed. The last price of ASYT is 26 1/4, the bid is 25 7/8 and the ask is 26 1/8. Now go down and look at the Feb 17.5 calls. Observe the best bid and best ask for those calls are 8 1/2 and 8 3/4. It's the bid that's important to us, right now. Because a person who sells, sells at the bid (no less!). Now the stock is bid 25 7/8. This means the owner of a 17.5 call could either sell the call for 8 1/2, or exercise the call and sell the stock for 25 7/8. Since the 8 1/2 is more than 25 7/8 - 17 1/2 = 8 3/8, the owner of the call should always choose to sell the call rather than exercise the option. Let's look at your options, the Feb 22 1/2. The bid is 4 3/8. Adding 22 1/2 + 4 3/8 and we get 26 7/8. Thus, the options you sold are worth far more when sold to close than exercised. In fact, each option is worth $1 more when sold to close as opposed to being exercised. So relax, you're not in imminent danger. If your are really, really worried, buy your options back in the morning. Don't keep a position that's going to cost you your health. It's not worth it. My wife is calling me for dinner. More later.

To: Techinvest who wrote (6523)	1/23/1998 2:19:00 AM
From: R. Gordon	Read Replies (1) \| Respond to of 14162

>>>My net on ASYT is 31$ and I sold the 22.5 feb when the stock was around 20 a few weeks ago, now record earnings come in and the price pops to 26+, if I let it get called I lose 8 1/2 per share.<<< Tech, I can't figure out your math in terms of why you are down $8.5, but if you must save your ass, here's an idea that's not real pretty. Buy back the feb22.5 for 4 5/8, and sell the June 30s for 3 5/8. That should stop the bleeding. I'm not sure about the math, but it should put you slightly ahead and save you from a very large loss. You may get a chance to buy back the calls and get on the horse again. Good luck, Richard