If I sell an out-of-the-money covered call and the option becomes in-the-money prior to expiry, then am I forced to sell my underlying at the strike price (assuming the counterparty decides to exercise)?

Or can I simply buy-to-close and keep the underlying?

  • Who is this imposter? Why did you change your name/ID from Kaushik ? – Victor Mar 1 '14 at 7:33
  • Sorry...people were catching on at work...sorry for the name conflict man. – Victor123 Mar 2 '14 at 1:01

If you get selected for exercise, your broker will liquidate the whole position for you most likely

Talk to your broker.

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  • Absolutely right. His question is a bit ambiguous, though. Prior to expiry, he can buy the option back, but if it expires in the money, the buyer exercises. Or if a dividend is near expiration, it make be worth it to exercise to trap that as well. – JTP - Apologise to Monica Mar 1 '14 at 3:22

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