Questions About Option Trading

The other day I post a message on Yahoo stock message board to asked suggestions on what direction I should take going forward with regard to the 4000 thousand shares of Bank of America I bought. The average share price I get in is at $11.25. So it is under water and I didn’t know what will happen on next Tuesday. A few person on the board have suggested that I sell call options while I am waiting for the stock price to bounce back. Frankly I never traded options and I have always considered options were something I should never touch. But the suggestions really interested me. It is not the first time I hear that. As you can see Bob’s on comment on this post Wells Fargo Is Over Valued at $25.70

I’m a long term holder and will own it for the next 5 years or more. I see this as an opportunity to sell options against the stock. I recently sold June 28 calls @ 1.60 and I am willing to risk having some shares called away at 28.

So I have study the options trading procedure in my stock trading account. The minute I finished the study I felt it open up my eyes and I felt I have missed out some big big earning opportunities for the past 10 year when I was a long term holder of some of the stocks. But I really have doubt and I need some help to clearing them out.

Bank of America Jun Options Chain

I look at Bank of America’s June 20th call options. See the above picture.The bid pice of Jun 20th call option with stick price at $12 has a premium iof $0.61. My question is If I sell 40 this contracts (40 X 100 share per contact = 4000 shares) I can net 4000 X $0.61 = $2,440 doesn’t matter where BAC stock price is heading next Tuesday. Am I right?

My next question is if some time in the next few weeks before the option expiration day Jun 20th BAC’s price come above $12 then someone who purchased my calls will exercise the calls and pay me $12 per share for my 4,000 share. Am I right? When the buyer exercise the calls I can make 4,000 X ($12-$11.25)=$3,000. So if I decided to hold the $4,000 share potentially I can make $5,440 before Jun 20th but I can make $2,440 for sure. Am I right?

My third question is if I decide to hold past June 20th and I sold 40 contract of this calls. Do I need to do anything to close the option position. If the buyers do exercise the options to buy my shares do I need to do anything?

Thank you very much for help me out.