Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Byron Xiao who wrote (75919)	10/30/1998 5:39:00 PM
From: FR1	Read Replies (1) \| Respond to of 176387

I am thinking about selling the Dec 70 calls. But I don't know where to find the price for that and whether my broker, Datek Online lets me sell only 5 contracts? As you can see, I am still not clear on options trading. Suppose DELL reaches 70 before the 3rd Friday of Dec, I get a call. Suppose I sell the Dec 70 options at $2 now, does that mean that my actual selling price is $72? What if I decide to keep the stocks when the $70 price strikes? Do I have to pay anything? Thanks. You can sell covered calls on as many contracts as you want starting with one. Each contract, of course, is 100 shares so you have 5 contracts you can sell. Let's take your example: 1) You will get $2 x 500 = $1,000 (minus brokerage fees) put into your account as soon as you sell 5 covered call contracts. 2) Suppose the stock goes well over $70 a share anytime between now and 3rd week of DEC. Then the person that bought your contracts will put 500 x $70 = $35,000 in your account and the shares are his. That, it! The idea is that you are limiting your possible profit. Selling covered calls is a good idea if you think the stock will go down or it will never reach $70/share by 3rd week of Dec. Oh yeah, if the stock goes up and approaches $70/share and you want to keep the stock, then you can buy back your calls but you will have to pay whatever the calls sell for at the time (probably much more than $2/share).

To: Byron Xiao who wrote (75919)	10/30/1998 5:47:00 PM
From: freeus	Read Replies (1) \| Respond to of 176387

recovered calls Hey 500 shares is not such a small DELL position. Remember if the stock goes to 85 or 90 before expiration, your stock can be called away for only $70 (and you also keep the $2 you got for selling the call.) You could always buy it back though when the stock settles down again, if it settled back to 70. But I dont think DATEK has options. They didnt have them last time I asked which was last month. Freeus

To: Byron Xiao who wrote (75919)	10/30/1998 6:00:00 PM
From: Chuzzlewit	Respond to of 176387

Byron, I have been selling covered calls for some time now, and the techniques has some ups as well as downs. On the up side you are selling time premiums to someone else, and in the process limiting your downside exposure. For example, if DELL 70s are at $2, and the current price of DELL falls to $63 you will be at break-even ($63 + $2). But in return, you are limiting your profit potential, so regardless of how high DELL might trade, you will never realize more than $72 per share. The premium is influenced by the following factors: the length of time remaining on the contract, the volatility of the stock, the strike price of the contract, the current price of the stock, and the risk-free rate of return. If the stock pays dividends, that too is a consideration. I sell calls short-term calls (1 month or less) that are far out of the money in hopes of having the option expire worthless. But even here, be prepared to occasionally having your shares called. I hope this very brief explanation helps. TTFN, CTC