In July I was long 100 shares of CPSL, that was purchased at an overvalued price, and I had rolled through several calls, until June, when I wrote a July 7.5 call. The third Friday in July came rolling around, and CPSL was trading well below my call's strike price (it was OTM), thus making the call worthless.
Rather than buying back the call to close my position(for .05 and commissions), I let it expire, with no fear that the buyer would choose to exercise the call he purchased (a loosing transaction: strike price - current price = big loss). Monday's opening bell came around, and the -1 (indicating: short) in my portfolio in E*Trade showed that my short call was gone, but 100% of my premium received still remained.
I had a decision to make, wait for this big price swing again moving back up to 7 and 8 dollars (only to capture my original purchase value), continue to sell short term calls and hope it doesn't spike in price on me while I am in a call (I would have to buy back my call in order to sell my stock, but as the price goes up so does the call price), or sell a long term call and forget it?
With the short term calls for 5.0, one month out were trading at .25; and, with 1 contract that doesn't net a whole lot of premium. A long term call, in this case 5.0 Mar'09 calls were selling for 1.30. A bit better for one contract.
Selling short terms didn't make a whole lot of sense to me. So, I eventually decided that if I am going to be long with this stock I might as well stick with it, and make my some winning options plays. I wrote a Mar'09 call, and pocketed the premium and in this case the ticking clock was my friend slowly eroding value. Everything else, I'll take in stride.
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