Replies to post #9163 on Advanced Micro Devices Inc (AMD)

[Haddock]

Is it correct to assume that there´s no real risk for the CC writer in your example, apart from "missing" out on potential gains of the stock he already owns?

No, there is the risk that the stock price will fall. Unless he wants to be left being short naked calls (ie he has sold unexpired calls that he has no stock for) the call seller has to hang on to his shares until the calls expire. That could be painful. He could also buy back the calls and then sell the stock of course.

The premium is fixed at the point the contract is made, ie the seller gets the money up front.

The call (and put) selling strategy works best with a stock that is going nowhere, but where lots of people are convinced that it is going somewhere really soon.

[Elmer Phud]

Keith - Is it correct to assume that there´s no real risk for the CC writer in your example, apart from "missing" out on potential gains of the stock he already owns?

That's correct, however depending on your brokerage account/balance, as the seller your shares are tied up unless you have a margin account with a good balance. Otherwise if the price tanks and you want to get out you must buy back the options so your shares are no longer obligated. Of course the option premium would be much lower by then anyway.

Not quite sure about the premium, is it a fixed amount that is determined at the point the contract between the seller and the buyer is concluded? When will the seller get this premium, right away or at the end of the "deal"?

The premium is determined purely by market forces and can change by the minute if the stock is volatile. The seller gets the premium immediately.

One other point. You're in Europe right? European options can only be exercised on the expiration date. American options can be exercised at any time up to expiration.

A question. As your use is flawless, is English your mother tongue?