Covered Calls-Writing Covered Calls

manny3000 asked:


Here is a scenario: Suppose friend A has $200,000 sitting in a bank account. Friend B sells covered calls and asks friend A to let him borrow the $200,000 for one week, and he’ll repay the full amount plus a bit of interest. Friend A agrees and writes friend B a check for $200,000.

Friend B find an ultra-volatile stock (like Fannie Mae) and sells a Jan 2010 call using full $400,000 (50%) margin capabilities allowed by his broker. Friend B nets $220,000 in option premium.

My question is, can you write a check to friend A for his full amount plus a bit of interest once the premium hits the account?

What happens in a worst case scenario for Friend B who wrote the call?

Nadia Grunewald

peter p asked:


i am long 2000 shares of company X at $1.50 per share. i like my position and wouldnt mind being taken out of it if it goes higher, but if it stagnates between here and january i would like to pick up some premium. so looking at the below option chain for the january $2.50 strike, how much premium would i collect…..

BUY/WRITE JAN 2009 Calls

Bid Ask Volume Strike Close Open
0.25 0.40 4 2.50 0.99 1.15
0.05 0.10 194 5.00 1.29 1.35
0.00 0.05 220 7.50 1.34 1.40

thanks

Brianna Maggini