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The Covered Long Call

The major risk involved with long-call contingent purchase is the same as for all long-call strategies: If expiration occurs before an adequate price increase occurs in the underlying stock, it is extremely difficult to make a profit in this manner. So, risk involves the same problem as every other long-option strategy: time works against you. Even if the stock's market value rises, you still need to overcome the time value problem.

There is a way to achieve this. Assuming that some or all of the stocks in this example increase in value before expiration, you can employ a secondary strategy designed to recapture the premium cost of the long call. The basic strategy is to sell a call with a higher strike price and earlier expiration than the long positions. Does this work out?


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