In Chapter Five, the put-call parity formula showed us that if you were absolutely certain that a stock was going to rise that you should either buy the shares with borrowed funds or buy the call and sell the put. Figure 8-4 shows why. The reason is that the long ... http://feeds.feedburner.com/~r/OptionsUniversityBlog/~3/459185036/ http://www.optionsuniversity.com/blog/2008/11/20/options-universitys-options-101-part-90/ On the other hand, an option with a much lower delta, say 0.50, has a lot of time premium and therefore behaves more like an option rather than stock. When we say “behaves like an option,” we really mean that it doesn’t respond too systematically with the stock. Its price ... http://feeds.feedburner.com/~r/OptionsUniversityBlog/~3/457991648/ http://www.optionsuniversity.com/blog/2008/11/19/options-universitys-options-101-part-89/ Chapter Eight Long Calls & Long Puts   In the last chapter, we found out that the covered call strategy relies on the purchase of stock and the sale of a call. We also found that the strategy has a potentially large downside risk since you must buy the stock and the sale ... http://feeds.feedburner.com/~r/OptionsUniversityBlog/~3/456778398/ http://www.optionsuniversity.com/blog/2008/11/18/options-universitys-options-101-part-88/ Chapter Seven Answers   1) You own 300 shares of ABC stock, trading for $60, and have written 3 $65 calls. You have the: d) Obligation to sell 300 shares of ABC for $65 Writing calls creates the potential obligation to sell your shares for the strike price. It is a potential obligation because ... http://feeds.feedburner.com/~r/OptionsUniversityBlog/~3/455586922/ http://www.optionsuniversity.com/blog/2008/11/17/options-universitys-options-101-part-87/ In the Long Run, Covered Calls Are Less Risky There are some studies that have shown where covered calls have produced superior returns to the market while reducing downside risk, which seems to go against the premise of the risk-reward tradeoff. But these studies are considering shorter time periods when the ... http://feeds.feedburner.com/~r/OptionsUniversityBlog/~3/454581933/ http://www.optionsuniversity.com/blog/2008/11/16/options-universitys-options-101-part-86/ Buy-Writes There is a special order that allows traders to enter into a covered call as a “package deal” to the market maker, which is called a buy-write. With a buy-write, you can send an order to “buy” the stock and simultaneously “write” (sell) the call, which can be executed “at ... http://feeds.feedburner.com/~r/OptionsUniversityBlog/~3/453684007/ http://www.optionsuniversity.com/blog/2008/11/15/options-universitys-options-101-part-85/ Hedging with Covered Calls Many investors are attracted to covered calls because of the immediate cash that can be generated into the account. Because of this, they tend to write the “full amount” of contracts against their shares. For example, if they own 500 shares, they will write five contracts. While ... http://feeds.feedburner.com/~r/OptionsUniversityBlog/~3/452546009/ http://www.optionsuniversity.com/blog/2008/11/14/options-universitys-options-101-part-84/ Covered Call Trap At the beginning of this chapter, we said that covered calls can contain an unforeseen risk, and we’re now ready to show how investors unknowingly can take step right into a trap if they believe that all covered call positions are conservative.   Because most investors do not realize ... http://feeds.feedburner.com/~r/OptionsUniversityBlog/~3/451449682/ http://www.optionsuniversity.com/blog/2008/11/13/options-universitys-options-101-part-83/