Deep-ITM covered calls

ADLE · Mar 15, 2006

Quote from Arnie Guitar:

You are forgetting the dividend, $.80.
Another way to do the math is.....

72.92(MO) - 4.30(Apr70call) - .80(Dividend) = 67.82(Total Cost)
If called away,
70 - 67.82 = 2.18 profit, 3.21% for 6 weeks, 27.8% annualized.

As for the tax implications, I dunno, I use H&R Block Tax software, and Microsoft Money.
I keep all my transactions on "Money", convert them into a .txf file, and upload them into the tax program.

Arnie

Thank you, Arni,
I always forget about dividends... :mad:

Algorithm · Mar 15, 2006

While you are at it, you need to look up how that .80 dividend will/should be taxed. I'll give you a hint, it's not at the 15% dividend rate.

Good Luck.

Arnie Guitar · Mar 15, 2006

Quote from DonnaV:

One difference to note Adle is that Arnie is NOT doing DEEP in the money....he is only slightly in the money and that is an important differerence. Most people see deep in the money is 25 to 50 % ITM rather a few %.

A very important difference, indeed.
Calls very deep in the money often have little to no premium.
There's that risk/reward thing again.
The first in the money call has the fattest premium.

Arnie

Arnie Guitar · Mar 15, 2006

Quote from Algorithm:

While you are at it, you need to look up how that .80 dividend will/should be taxed. I'll give you a hint, it's not at the 15% dividend rate.

Good Luck.

Well, even if it's 38%,
62% of something is better than
100% of nothing.

Arnie

jj90 · Mar 16, 2006

Using Deep ITM covered calls has no purpose as has been brought up unless using they have much premium in them (aka high IV or LEAPs). And as been brought up again, there are better ways to to do it. If one was to use CCs then ATM or OTM options would be best to do this as those options are mostly premium.

BTW, Arnie I'd watch out for MO's dividend.

Arnie Guitar · Mar 16, 2006

Quote from jj90:

BTW, Arnie I'd watch out for MO's dividend.

You have my attention, what do you mean?

jj90 · Mar 17, 2006

I don't know when the next time MO's dividend is, but when it comes around watch out for your short call as it's got a good chance to be early exercised. Especially if the cost of carry + same strike put price < dividend.

Arnie Guitar · Mar 17, 2006

If you read my post, it went ex-div this Monday, the 13th.
It didn't get called away, I still own it.

zdreg · Mar 20, 2006

Quote from Donna

Selling deep ITM calls on stocks is a bearish play...you are hoping the stock goes down but not get called away...however if it is in the money it WILL get called away. There are just better option choices if you are bearish where you will get more bang for the buck so to speak. [/B]

if it is in the money it will get called away.
what are you referring to when you talk about hoping. that is not a strategy.

rcmcfe · Aug 2, 2007

Just so I'm clear on this, here's my position.

Bought 100 shares of ICO yesterday @ 22.95. Sold 1 contract of the Aug. 22.5 calls for a premium of 3.10....

Well, today ICO is trading @ 27.69 and the price of the 22.5 call is 6.00..

So...the way I figure it, I have 3 options...

1) do nothing @ expiration, & at which time my 100 shares will be exercised @ 22.5. This leave me with a 45 loss (22.95-22.50). But I will get to keep the 310 premium I received when I sold the calls...

or

2) buy back the 22.5 calls and take a loss of 290 (6.00-3.10*100). ( this is assuming I bought back the calls today). But I get to keep the stock.

or

3) buy back the calls @ expiration in which case I keep the stock but could suffer a loss on the call buy-back.

Is this correct? This is my first covered call trade.

Thanks.