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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: jw who wrote (9158)	11/23/1998 8:02:00 PM
From: Douglas Webb	Read Replies (1) \| Respond to of 14162

Let's do the math; buy stock at 8½, sell calls at 2¼ til' March, (Dec. Jan. Feb. Mar), 4 months,= 1/3 year. 2.25 ÷ 8.50 = 26.4 % int. for 4 months. or 26.4 ÷ 4 (months) = 6.6 % per month or 26.4 x 3 (1/3 of a year) = 79.2 % per year. ( not too shabby <g>. Someone correct me on this? You're buying the stock at $8.50, and writing the call at $2.25, which is a 26% profit. But, you forgot that the call's strike was $7.50. So, your calculation is correct only if WALK closes below $7.50 next March. For anything above that, you have to give back $1 of the premium ($8.50 - $7.50). $1.50 / $8.50 = 17.6% profit for 4 months, or 53% annualized. Still not bad, but only worthwhile for a large number of calls. At $150 profit per contract, you can lose a lot (percentagewise) to commissions if you're just doing one or two. Doug.