Covered Call Options Question (ATW)
I'm a long-time stock guy but an options rookie.. looking for some help from more seasoned options vets to make sure I am thinking about this potential covered call the right way...
I have 100 shares of ATW that have appreciated considerably from my cost basis and at these levels, I would not mind selling at a higher price and am considering writing a covered call.
I am looking at a few different call options to potentially write but wanted to take this one as an example:
a) the July '11 $40 strike:
-Current Stock Price: 39.25- Stock Price: $40
-There are 21 days until expiration (starting tomorrow)
-the call option currently costs $1.20, which means the yield is 3.06% (1.20/39.25) assuming that the stock price does not move (the static return). The max return (if called) is Net Profit/ Stock Price= $1.95/$39.25= 4.97%
-The annualized return if called = 4.97%* (365/21)= 86.35%
- Breakeven price for this trade is stock price - call premium =39.25 - 1.20 = $38.05.
Summary: I get 3.06% downside protection by selling the call and 4.97% upside potential
Fools, are these numbers correct and am I generally thinking about this the right way?