Buying the $10 call was like buying the stock on margin without paying margin interest and going that low in price gets rid of a lot of the time premium, but not all.
So selling the $25 call more than covers the time premium.
It cost me $8.28 to buy the $10 call and i took in $1.72 on the $10 call for a net cost of $6.56.
If it gets called I have a cost of $6.56 + $10 = $16.56
$25 - $16.56 = $8.44 gain
But that gain is not on $16.56 but on the $6.56 I laid out.
So i will have more than a 100% gain in 14 months if called away. If not I have a cost basis of $16.56. So do I really care if it gets called away? That is above my AIM directed sell price anyway.
I did sell some $20 puts a day or two too early before doing the above trade. I did it when $20.50 and took in $3.59 I could have done a lot better. But I am willing to buy at $16.41 Again that was for January 2018. I like getting LOTS of time premium.
Only use options for what you are willing to do anyway. Say that to yourself 3 times before making any option trade.
For fear of boring the bejesus out of everyone else you might want to ask me a question like that in a private message.
But here goes.
I bought $10 January 2018 calls. For arguments sake lets say the time premium was $1.50 ( current price lets say $17 and $8.50 cost for $10 call) I then SOLD $25 January 2018 CALLS which more than covered the TIME PREMIUM (for arguments sake lets say I took in $2.50 )
So my COST is a net $6.50
If it gets called i make the difference between $16.50 and $25 or $8.50 which is more than the $6.50 I had to have in my account before starting.
It is basically buying on margin without paying margin interest. I think I can be happy with a more than 100% gain in a little over a year.
The $25 call only covers a little more than the time premium of the $10 call, not the whole premium.
Google "Poor mans covered call" you might find a further explaination.
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