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evonsdesigns/Why you should do covered calls.md

Last active July 16, 2018 19:48
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Why you should do covered calls.md

SQ is currently $68 and I own 100 shares. Say I will sell you the right to buy 100 SQ from me for $10. The deal is you buy 100 SQ at $70/share next Friday.

Outcomes:

SQ over 70 -> Buyer (you): You get to buy 100 SQ from me at $70. Wit a $10 premium, your effective price is $70.10 (if SQ is over that, you make the difference as gains$$) Seller (me): I sell 100 SQ @ 70, and keep the $10 premium.

SQ under 70 but above initial price -> Buyer: Call is worthless. (loses value initially paid) Seller: Keep premium and the 100 shares of SQ. (this is best outcome)

SQ drops from initial price -> Buyer: Protected from losses of owning the stock. Call is worthless. Seller: Incurs losses from stock, but keeps premium and shares. (premium reduces total losses) (second best outcome)

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