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Technology Stocks : Netopia: Farallon Communications -- Ignore unavailable to you. Want to Upgrade?

To: JEAST who wrote (455)	5/5/1999 6:59:00 PM
From: M. Frank Greiffenstein	Read Replies (1) \| Respond to of 522

Sold my covered calls... I dumped all my covered calls today and bought more common at $19. A covered call is when you write call options against your stock. They are called "covered" because they are backed up by shares in your cash account (as opposed to selling naked options, where you do not own the shares for the stock your are optioning). For example. I wrote the May 20 calls against my NTPA stock. This means that the buyer of my options has the right to purchase my NTPA shares for $20 the third Friday of May. The option buyer pays me for that right (called a premium), in this case, the premium was $5.50. Now, you should only write covered calls if you feel a stock has "topped out" for the time being, you are saying "This stock ain't going up much in the next month". If you are right, the value of the option declines with time. You can "cover" the calls by buying them back at a cheaper price. In my case, $1.45. So my profit is about 75%. The beauty of covered calls is that you collect the premium immediately! The risk is this. If the stock skyrockets, you no longer participate in the move. By selling May20 coverd calls, I was in essence selling all my stock for $25.50. If NTPA had gone above $40, I would have missed out on almost $15 in profit. The flip side of this is if NTPA price collapsed down to $10. The 5.50 premium gave me downside protection to $14.50, so my loss owuld have been $4.50. But the May 20 option would be worthless at expiration, and I can sell covered calls again to reduce that 4.50 loss if I wished. DocStone