writing covered calls in FX

Phoenix669

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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?
 
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?
 
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.
 
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