Wildcrib

I hope this simple story helps you understand what covered calls are.

Sweety’s Lemonade Stand

Once upon a time, in the whimsical town of Sunshine, there was a little girl named Sweety who had a lemonade stand. Sweety’s lemonade was special because its taste would change based on the weather. One day, Sweety’s sister, Sunny, had a clever idea.

“Sweety,” Sunny said, “what if you let people buy tickets for a little extra money now for the chance to buy your lemonade later at a fixed price? You’ll make some extra money upfront!” Sweety liked this idea and called these special tickets “Lemon Tickets.”

And so, Sweety sold Lemon Tickets to three friends: Timmy the Tiger, Bella the Bunny, and Freddy the Fox. But as it happened each friend reacted differently to the changes in the value of Sweety’s magical lemonade.

On a regular sunny day, Sweety sold her delicious lemonade, and everyone in town loved it. Timmy, Bella, and Freddy used their Lemon Tickets to buy lemonade. Sweety made extra money from selling the tickets and everyone enjoyed their refreshing drinks.

Then one rainy day, Sweety’s lemonade wasn’t as tasty. She had to drop the price of her lemonade, and many people decided not to buy it. But Sweety had already made some extra money from selling Lemon Tickets. Timmy said, “Even though I didn’t get lemonade today, I’m glad I had the option to buy some!”

Then came a super sunny day, and it seemed everyone wanted to drink Sunny’s lemonade! She raised her prices high because everyone wanted it. But Timmy, Bella, and Freddy had bought Lemon Tickets at a lower price, so Sweety missed out on making even more money from them. Freddy said, “I’m happy I got my lemonade cheaper, but poor Sweety, she missed out on extra money.”

On another day, Sweety was at the store and noticed the cost of lemons went up because of a lemon shortage. Sweety had to spend more money to make her lemonade. Although the Lemon Tickets gave her some extra money, it wasn’t enough to cover all the costs. Bella said, “I understand now that sometimes things cost more to make, and it’s not always easy.”

Reactions to Ups and Downs

• Timmy was happy with his Lemon Ticket because he liked knowing he could always get Sweety’s lemonade at a set price, even if the value changed.
• Bella was happy Sweety made extra income from Lemon Tickets sales, but she felt bad when the cost of making lemonade went up.
• Freddy was excited about getting lemonade cheaper during the super sunny day but realized Sweety missed out on extra profits.

In the end, they all understood the ups and downs of Lemon Tickets. They learned that while it was a great way to make extra money, there were times when it might not work perfectly.

And so, they all enjoyed their magical lemonade, supporting each other through the sunny and rainy days.

The End

Here’s another version where I add dividend payments to the story.

Sweety and the Magic Lemonade Tickets

Sweety had a lemonade stand. Sometimes her lemonade was super yummy, and sometimes it wasn’t as good.

Sweety’s friends, Lily and Rose, had an idea. “Sweety,” they said, “let’s sell special tickets! People can buy these tickets now, and later they can use them to buy your lemonade at a special price.”

Sweety called these special tickets “Lemon Tickets.” She sold them to Timmy, Bella, and Freddy.

• Sometimes, everyone loved Sweety’s lemonade! Timmy, Bella, and Freddy used their tickets to buy lemonade, and Sweety was happy.
• Sometimes, the lemonade wasn’t so good. Not many people wanted it, but Sweety still had the extra money from selling the Lemon Tickets.
• Sometimes, everyone REALLY wanted Sweety’s lemonade! But Timmy, Bella, and Freddy used their tickets, so Sweety missed out on making even MORE money.

Here’s where dividends come in:

• Lily said, “Sweety, since I helped you sell these tickets, can you share some of the extra money with me?” Sweety thought this was a great idea! She gave Lily a small treat as a “thank you” for helping.
• Rose said, “Sweety, instead of sharing the money now, can I use it to buy even MORE Lemon Tickets next time? That way, I can get even more lemonade at the special price!” Sweety agreed.

Timmy, Bella, and Freddy were happy because they could always get Sweety’s lemonade at the special price. Lily was happy because she got a treat for helping. Rose was happy because she got to buy even more lemonade!

Sweety learned that Lemon Tickets were a fun way to make money, and that sharing the extra money with her friends (like a “thank you”) made everyone happy!