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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: RCVJr who wrote (7139)3/22/1998 8:09:00 AM
From: blankmind  Read Replies (1) | Respond to of 14162
 
RCV,

- According to the magic of writing covered calls, in 3 or 4 years, the guy in your example would break even.

- E.g. Buying VVUS at $40; and writing a covered call (note: assume the underlying stock never gets called away)

- Every month or 2, the holder gets a $1 or $2 call premium.

- After 3 or 4 years, assuming the price of Vivus is $10, the holder would have recouped all $30 of loss back.

- Am I correct?



To: RCVJr who wrote (7139)3/22/1998 8:11:00 AM
From: blankmind  Read Replies (2) | Respond to of 14162
 
- There's one more downside to writing covered calls that I completely forgot about.

- If you write a April '98 $15 covered calls on Vivus (now at $10); and the price of Vivus goes back to $40 on April 14th when earnings come out; your upside is severely limited.

- Instead of being up $25 ($40-15) per share. You'd only be up like $6 (15-10+5).

- I think. Am I correct?


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