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Chapter 5. Options as Cash Generators > The Exercise Acceptance Strategy

The Exercise Acceptance Strategy

A final strategy worth mentioning is the exercise acceptance strategy. Most conservative investors are content to keep their long-term stocks and to use well-selected out-of-the-money calls to create additional profits along with downside protection. However, what if you would be happy to see your call exercised?

Example: You bought shares of Federal Express at $72 per share 2 years ago. That stock has current market value of $87.78 per share. You would be happy to sell today and take a 15.78-point long-term capital gain. However, you could sell a covered call expiring in 27 months and gain even more. Today, the 27-month 90 calls sell for $1,230. If exercised, you could keep the $1,230 and earn capital gains.


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