Thanks Toofuzzy for the explanation. Very helpful. A couple of questions to see if I truly understood what you wrote.
When you say: "Buying the $10 call was like buying the stock on margin without paying margin interest..." does this mean you do not have the stock in hand but will claim it if it gets that low or near it? Or would you be adding this to what you already have?
When you say: "If it gets called I have a cost of $6.56 + $10 = $16.56" it is being called at $25, right? And you get the stock that called away by exercising your $10 call, right?
When you say: "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." Is the $10 a typo and it should be $25?
Then when you say: "I did sell some $20 puts a day or two too early before doing the above trade. I did it when $20.50 (is something missing?) and took in $3.59..."
Sorry about being picky, but I have found that if I think I understand something and don't validate my understanding I make lots of mistakes and options is confusing enough I'm sure I need both belt and suspenders to keep my ass covered.
Best,
Allen
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