Part 1
At the end of one my classes at Irvine, an option trader stopped by for some small trading chit-chat. By the look in his eyes, I could tell that he had a large position that was eating away at his sleep as well as his finances. Without disclosing the trader's identity, I would like to describe the situation in which the trader had found himself. He owned 10,000 shares of an unnamed pharmaceutical underlying which, at the time of his entry was trading at $9.95 ($9.95 times 10,000 equals $99,500 in a single trade). Knowing as much as he did about options, he had chosen to sell credit calls on the shares that he owned. As a reminder, each contract controls 100 shares, so if a trader has 10,000 shares (divided by 100) he could sell...