Replies to post #21 on Maksims Covered Call Options Forum

[chog]

I am new at writing calls, I've been writting puts out of the money so far with moderate success...
Which is the best strategy if the stock goes down sharply?
For example in a position I am planning: UYG @ 5.55 and writting call mar/09 strike 5 @ 1.75. If we consider that the breakeven point would be around 4.4, what would you do if the stock falls sharply to 3 again like it did in November? Any strategies would be appreciated.

[maksim]

Options Expiration Update...

Ford and UYG would of expire worthless today, for a nice premium. I bought back UYG 2 days ago for $.05, and bought back ford for $.02 today.

Usually what will happen is that right before expiration, market makers tend to push the stock closer to the strike price... ala today... Ford closed at $2.95 after being down below $3 most of the day. The issue is, had Ford closed at $3.01 or higher, the calls are automatically exercised, by the broker dealers. With runoffs and late pushes, it was too close, so I just decided to spend $30, and lock in my gains, bought back the calls for $.02.

the thing that most people dont know, is that even though the last day to close calls is Friday at 4pm, the call owner, can exercise as late as Saturday at 12PM.

What can happen, and has happened before, news comes out after close, causes stock to go up after hours, or say a takeover, and your shares get called over the weekend, even though they closed Friday below the strike.

For December, I made on Ford, 33.8% return on the call written on Dec 1, @ $.41, bought back for $.03 (fees rolled in), or 641% annualized. Not including the roughly $.25 cents I am up on my Jan 2010 Leap @ $2.50 strike.

Also, for this month, had UYG bought back, this is the second month for this one. Dec 9, wrote $7 calls for $.36, bought back Dec 18, for $.06 (fees rolled in). $.30 cents gain for 9 days. 11% gain vs my cost basis, or 440% annualized gain. Written against June 09 $7 call with cost basis of $2.54, total collected in 2 months... $1.05 in premiums net of fees.