A Realistic Trade

Let’s look at a real-life example of a covered call trade that did not progress quite so idealistically.

In the preceding idealized example, the overall price movement of XYZ is similar to that of Qualcomm Inc (QCOM) during 2003. From May 2003 to December 2003, QCOM moved from $30 to $50. Unfortunately, the month-by-month price movement of QCOM was not always coordinated with the options expiration date so as to allow for an easy decision about how to proceed into the next month.

Suppose that you bought 100 shares of QCOM in May 2003 for $30 and sold 1 Jun 35 call for $1 a share. See Figure 14-1 for the risk graph that depicts this trade. Note in the risk graph that the maximum profit on the trade is $600 no matter how high ...

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