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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: Joseph Francis Torti who wrote (8056)	8/3/1998 5:19:00 PM
From: Caroline	Read Replies (1) \| Respond to of 14162

You would cut your loss from $600 to $112.5, but you would pay an extra option commission. Seems worth it if you're going to bail anyway. CB

To: Joseph Francis Torti who wrote (8056)	8/3/1998 6:59:00 PM
From: Zach E.	Read Replies (1) \| Respond to of 14162

I have 200 shares long of HD at 43 3/8 and 100 shares long HD at 41 1/8. I want to sell 3 contracts HD Aug 40 call paying 2 1/4 points premium. Stock close at 40 5/8 bid. What would happen if I did that tomorrow morning? Would my long get called right away? Probably not, as there is still 1 5/8 premium in the Aug 40 call. Since this call gives the buyer the right to buy HD at 40, it has 5/8 intrinsic value, and 1 5/8 time/volatility value. I want to get out of the stock market fast. It's not for me. The only fast, sure way to get out of your HD position is to sell the stock. You may take a loss, but the loss may be greater if you wait. (Of course, you could wind up with a profit if you wait, too. I am not suggesting that you should sell HD, just that it is what you should do if you think it will probably drop further, and want out of the position.) I am losing about $550.00 on the long so the 2 1/4 premium would give me 675.00 and get my loses back fast. Am I reading this right? No. the premium obtained will give you a lower cost basis, but your position will still be exposed until the call option expires, which is Aug 21. Technically, the stock could get called from you earlier, but this is unlikely. And if the stock open at 40 5/8 does it get called at the market price or does it get called at $40.00 even though market price is 40 5/8 ? Thanks If and when the stock is called away, $40/share is deposited in your account. If HD were to close at $40 or lower on Aug 21, you would still have the stock. Good luck, Zach