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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: Herm who wrote (9945)	3/15/1999 5:43:00 PM
From: Herm	Respond to of 14162

Special Thanks to Tom for catching a mis-stated math calculation I made with PAIR LEAP spread. The return is good, but, not as good as I stated. I wrote TOM: You are right! I stand corrected. The results are good but not as I indicated. I stand corrected! I will post this reply today! First, you have to trade with a brokerage that allows trading option spreads. In other words, a full service options trading house. Second, you would buy the PAIR 7.5 LEAP00 @ example around $4. The LEAP is your long position. Next, you write (sell) the shorter PAIR CALL at more than your LEAP strike price (7.5) for say PAIR 10s July calls @ say $2. The prices change everyday. So, you would have to check today's quotes. Now, if PAIR moves by July expiration to 10, you should be called out of the CALL at 10 and your LEAP would be exercised at 7 1/2 by you to cover the 10 you owe the CALL buyer. So, $10 (the July CALL strike price) - $7.5 (your LEAP 2000 strike price) = a +$2.5 difference in your account. Now, add the $2.00 you collected from the CALL and you have $2.5 + 2.0 = $4.50. Hummmm? You get $4.5 vs. $4.00 cost or .50 (12.5%) unmargined if called out and 2.00 (50%) unmargined if NOT called out! Plus, you get to dump the LEAP for more than you paid or do another round of CCs.