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Strategies & Market Trends : Best Option Strategies and Option Insight -- Ignore unavailable to you. Want to Upgrade?

To: Mr.Manners who wrote (104)	3/30/1998 8:31:00 AM
From: Joseph Francis Torti	Read Replies (2) \| Respond to of 245

Hi Can anybody help me. I am trying to understand covered call option writing. Please let me know if the below example is right or wrong. I have 300 shares of Compaq at $30.00 And I want to limit my lost by writing 3 contracts of July 30 covered calls selling this morning for a premium of 1 11/16 total $504.00 My lost as of this morning if I bought the calls would be around $500.00 If the price stays the same at $26.50. As I understand it, if the price goes up to $30.00 or more I would get my loses back but may lose my long holding because the stock price hit the $30.00 strike price. Now if that was to happen I would get my loses back but would lose the 300 shares of my long on Compaq. If this was true then my total capital with the stock being call would be $504.00 premium for 3 calls + 9,000.00 for 300 shares of long being called back. Total 9,504.00 minus any commission. Is this example correct. If this example is correct then I would have a profit of $504.00 and be happy just getting my damn money ,back I don't care if the stock goes back to a hundred. My other question is what if my 3 contract of covered called does not get to $30.00 by the July expiration date. Do I have to buy it back or just let it expired. Would I lose the $504.00 premium I received for the covered calls if I let it expired without buying it back? If I could do this, would I save money not buying it back and not paying the commission on the buy back? Correct? Yes or no? Any help or reply in making me understand this once and for all would be greatly appreciated. Thanks Joe T. in R.I.