If I write a covered call, my account will be long the underlying and short a call. Say I withdraw the premium from my brokerage account and spend it, invest it elsewhere, etc.

If I want to later sell the underlying to buy back the option, there is a bit of a catch-22. I can't first sell the underlying and then buy back the option, because the underlying is locked to cover the option. I can't first buy back the option and then sell the underlying, because I need the proceeds from the sale of the underlying to be able to afford the option (because I withdrew the premium and/or the premium may have increased).

However, the total long-underlying short-option position has positive equity. What kind of trade would I be expected to do in order to liquidate the entire position and leave my account with a cash balance? What is that kind of trade called, and do I need to fund my account in order to execute it in two legs or can I do it atomically to avoid needing extra collateral?


1 Answer 1


If this is a margin account, you can buy the short call to close and then sell the stock, incurring no margin charges. However, that's not the best way to close the position, regardless of the type of account involved.

A Buy/Write order contains stock and an option. It can be done in a cash or a margin account.

For establishing a covered call (assuming that you don't already own the stock), this means buying the stock and selling the call in one order. This enables you to designate a net price that you are willing to pay. You don't care if you pay a little more on one leg because you then receive that same amount on the other leg (or vice versa).

Similarly, you can use a Buy/Write order to exit an existing covered call. You sell the Buy/Write (sell stock/buy option to close).

  • Good answer, tacking on one bit. If your broker does not support combination orders (trading shares and options in one order) and you can't sell naked calls then you have to fund the account to close this position or wait until option expiry.
    – Hart CO
    Commented Sep 30, 2021 at 22:59
  • 1
    Thank you. Are there U.S. brokers that offer option trading that don't support Buy/Write combo orders? Commented Oct 1, 2021 at 0:49
  • The only one I know offhand with certainty is Robinhood, Vanguard didn't as of a year or two ago but not sure now.
    – Hart CO
    Commented Oct 1, 2021 at 5:29

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