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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: Hectorite who wrote (10503)	4/23/1999 2:30:00 AM
From: NateC	Read Replies (1) \| Respond to of 14162

Hectorite..you wrote....Excerpt from your scenario: "bought an underlying at 22, and sold the 25 call for $2...(Stock goes to 27)...pay $3 to cover...We now have the underlying at 27, and the full 5 on the runup.....but we've spent $3 in buying back..so we have a net $2 on the underlying...plus our original $3 premie....for a total of $5. It's the SAME, it seems to me." The original was 2, not 3. So here's what I get with stock at 27. Do Nothing: +3(stock)+ 2 (short prem)=+5 cover: +5(stock)+ 2(short prem)-3(cover prem)=+4 (worse than doing nothing) Roll up and out: 5 + 2 -3 + 2(assumed)=+6 We're pretty close I think......you said "the original was 2 not 3".....I assumed that if a stock is at 27...and there's 3 weeks to go( for example).....that 25 call has $2 of intrinsic premium...and some time premium...so I assumed it would take you $3 to buy back the $25 call when the stock is at $27. Otherwise...I agree..and our math seems the same. thanks for checking this!