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Author: JoelKrug Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 19483  
Subject: Re: Options income Date: 8/17/2001 2:28 PM
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It is quite possible to add a significant amount to your annual return by selling
out of the money covered calls.  The table below gives some numbers which may
be useful.  By way of explanation:  the 1st column is the amount (%) by which the
Call strike price exceeds the market price of the underlying stock.  The 2nd
column is the duration of the option, from time of purchase (in days);  the
remaining columns are the ANNUALIZED returns (as % of the underlying stock price)
for various level of stock volatility.  These assume, of course, that the option
is not exercised. (I've subtracted $0.10 per share for RT commissions and fees.)

Bottom line:  it is quite possible to make 10% to 20% (or more) by selling
out-of-the-money covered calls.  The risk is losing some upside profit potential
(and you may have to sell the stock before you would otherwise do so).


.                                   TOTAL ANNUALIZED RETURN          
% Out of    Option      ……………………………………………………… volatility………………………………………
money      Duration     Low (0.3)     Med (0.4)      Med (0.5)       High (0.6)
 10%         30 days       6.0%           16.6%          30.4%           46.9%
 10%         60 days       10.2%          19.7%           30.8%           43.1%
 10%         90 days       11.3%          19.6%           28.8%           38.6%
 10%       120 days       11.6%          18.9%           26.8%           35.1%
 10%       180 days       11.5%          17.5%           23.7%           30.1%
 10%       270 days       10.9%          15.6%           20.5%           25.3%
 10%       365 days       10.2%          14.2%          18.1%           22.0%
 15%        30 days       0.4%           6.5%           16.0%           28.3%
 15%        60 days       4.6%          11.9%           21.1%           31.8%
 15%        90 days       6.5%          13.6%           21.8%           30.9%
 15%       120 days        7.5%          14.1%           21.4%           29.3%
 15%       180 days        8.4%          14.0%           20.1%           26.3%
 15%       270 days        8.6%          13.3%           18.1%           23.0%
 15%       365 days        8.5%          12.5%           16.5%           20.4%
 20%        30 days        -1.6%          1.6%           7.7%           16.6%
 20%        60 days         1.6%          6.9%          14.3%           23.4%
 20%        90 days         3.5%          9.2%          16.4%           24.6%
 20%       120 days        4.7%          10.3%           17.0%           24.4%
 20%       180 days        6.0%          11.2%           16.9%           23.0%
 20%       270 days        6.8%          11.3%          16.0%           20.8%
 20%       365 days        7.0%          10.9%          14.9%           18.9%
 25%        30 days        -2.2%          -0.7%         3.0%             9.3%
 25%        60 days         0.1%           3.7%          9.4%           17.1%
 25%        90 days         1.7%           6.1%          12.2%          19.5%
 25%       120 days        2.8%            7.5%          13.5%          20.3%
 25%       180 days        4.2%             8.9%          14.3%          20.1%
 25%       270 days        5.3%             9.5%          14.1%          18.9%
 25%       365 days        5.8%            9.6%          13.5%           17.5%
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