Writing covered calls

Earl Smith t_esmith at hotmail.com
Fri Feb 13 04:56:34 PST 2004

I found a stock selling for 42.76 - this stock looks to be on the rise.  The 
April 42.50 call last sold for 2.55.  If I buy the stock for 4276 and sell 
the option for 255, my cost basis in the stock is 4021.  If the option is 
exercised, it seems to me that I have 229 minus commissions.  I think I 
recognize some of the potential shortcomings for this strategy - the stock 
might not rise enough for the option to be exercised, or the stock might 
fall, in which case I wouldn't be called; the stock might rise enough for me 
to have made more money buying the stock and selling it at a profit; I might 
not be able to find a buyer for the option.

Are there some other pitfalls that I don't see?

Earl Smith
t_esmith at hotmail.com

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