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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: micny who wrote (8425)	8/31/1998 2:26:00 PM
From: Caroline	Read Replies (1) \| Respond to of 14162

That's exactly what happens. CB

To: micny who wrote (8425)	8/31/1998 2:37:00 PM
From: Douglas Webb	Read Replies (1) \| Respond to of 14162

You can do that, but it's a dangerous game to play. If the stock continues to drop, you could be hit with another margin call, and now you can't sell stock to cover the margin call because you've written options against it. You'll have to cover your options first, and then sell the stock, which will probably end up costing you more overall. Also, remember that margin doubles your percentage gain and also your percentage loss. That is, if you're at 50% margin, and your stock goes down $1, you've lost $2. Even worse is when you've got a margin call, because now you're at 65% margin or more, and losing money even faster. I lost a vast amount of money playing this game last year, most of it during the 'Asian Flu' downturn. Now we've got the 'Russian Flu' to contend with, and it might be even worse. Doug.

To: micny who wrote (8425)	8/31/1998 5:45:00 PM
From: VincentTH	Read Replies (1) \| Respond to of 14162

Caroline said you can do that, and Doug added that it's dangerous. I just want to add a technical point: After you sell an ITM call, the margin value of your stock is reduced by the amount that is ITM. Say you own 1000 shares of XYZ @11 a piece, your margin value is 11,000. Now, say you sell 10 calls with a strike price of $10. Your equity margin value is now reduced to 10,000 since you cannot count the amount that is in the money ($1,000). Of course, the premium paid to you also count towards the margin value (i.e. reduce your margin debit). My 2 cents.

To: micny who wrote (8425)	9/1/1998 5:08:00 PM
From: Herm	Read Replies (2) \| Respond to of 14162

Good dialog everybody! There is no such thing as a dumb question when it involves real money! You are better off knowing the risk/reward ahead of the game. Along the lines of what Vincent was saying. I have used CCs premies as a way to raise cash for my margin calls. Going with ITM CCs several months out (4 to 6) can really bring in big cash. That will buy you time! Now, if the stock price drop(s) is greater than the CC premies then you will be faced with the same margin call and you will most likely have to dip into your pocket with new cash. It is wise to play it safe and not tap out all of your margin. Leave yourself plenty of room for price fluctuations.