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I own 300 shares of NCLH, I sold a call last Monday with strike price of $16 when the stock was at $15.8 for a premium of $115 (for the 3 calls). The Call expires tomorrow and I don't know what I have to do. If I don't do something the shares will sell correct? What is the best way to keep the shares (NCLH is at $16.8 right now); or what is the best thing to do in this situation? Thank you!

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The best thing to do depends on what the stock actually does going forward.

If NCLH is above $16 at tomorrow's close, you will be assigned and your shares will be sold at $16.

If you buy back your short calls, you will realize a loss on them but since NCLH is higher, you have a net gain due to the appreciation of the stock. I am not a fan of realizing option losses and then carrying paper gains because the market has a perverse way of making you pay for that.

The other alternative is to roll you calls up and out (higher strike, later expiration) for at least break even or better. The later the expiration, the higher the strike price you could roll to (7/17 $17.50 call or 7/24 $18.50 call). Note that these are break even rolls. You could roll to any strike/week of your choosing.

There are lots of web sites that explain this. Here's one that I randomly grabbed.

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  • Bob, What do you mean by this: "I am not a fan of realizing option losses in order to defend paper gains because the market has a perverse way of making you pay for that"? That is what I was planning to do, maybe I shouldn't? I am assuming that NCLH will be higher than $16 tomorrow – lgalico Jul 1 at 16:41
  • I should have used the word 'carry' instead of 'defend'. Here are some made up numbers to demonstrate this. Buy stock for $28, sell $30 call for $1. At expiration, stock is $33 and call is $3. BTC call, realizing $2 loss on the call with $5 paper gain on stock. Stock now drops, taking back paper gain. I'm just not a fan of doing this. My preference is to either accept your fate and realize the gain (assignment) and find another winning position or roll the short call up and out for a credit. Rolling a covered call is a subjective decision (strike and expiration choices). – Bob Baerker Jul 1 at 16:56
  • That makes sense. I will wait until it execute and decide if I want to repurchase on Monday. Thanks for the input! – lgalico Jul 1 at 17:28

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