writing covered calls in FX

[Phoenix669]

Looking for more information on this strategy.

I understand you sell a call option at a higher strike than spot, but what I am trying to figure out is how to calculate the price on expiration.


say you can buy euro at 1.28, and you can sell a 1.3300 sept 2011 call for .0630.

now as this is a bull spread, im basically hedging the downside, so if euro runs to 1.33, i make 500 pips but lose 630 on the option premium?

 

[Martinghoul]

First of all, you have to take into account the fact that the fwd may be different (and sometimes by a lot) to spot. Secondly, you don't lost the 63 on the premium, you keep that, as you have sold the calls. Does that make sense?

 

[GTS]

You can't lose on the option more than you make on the underlying until it goes itm, the downside hedge is there but limited.