Hi SF
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?
( I have till January 2018 to either call it or let it be called by the $25 call I sold)
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?
( If the price goes above $25 at expiration I will recieve $25 or will have to buy the $25 call back. MY cost is the $10 + what I paid for the $10 call 0r $8.28 minus the $1.72 I took in selling the $25 call) There is a typo below .
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?
(Yeah the $1.72 was what I got for selling the $25 call)
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..."
( that was a separate trade I did a few days before. I sold puts at a price I was willing to buy)
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.
Options are gambling unless you are selling covered calls at a price you would sell anyway or selling puts at a price you are willing to buy anyway.
Hope that helps
Toofuzzy
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