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Scenario: If I hold 100 shares of XYZ, I can sell 1 XYZ call. Let's say the current price of XYZ is $50. What if I sell a call with strike price $45? Does that mean the underlying owner can call away the shares immediately, or do they have to wait until the expiration date?

I ask this because my brokerage gives premiums for prices lower than the current price, so I assume it's possible?

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Yes. If I own a call, an American call option can be exercised at my wish. A European call can only be exercised at expiration, by the way.

Your broker doesn't give you anything but a current quote for a given strike price. There are a number of good option related questions here. A bit of searching and reading will help you understand the process.

  • Why does a quote exist for such a combination though? Why would anyone want to sell a call @ a price lower? – JLewkovich Sep 4 '14 at 0:42
  • I strongly suggest looking >>> at related questions and reading. Your followup comment is a question in its own right, and would take a good page to answer. – JoeTaxpayer Sep 4 '14 at 1:25
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They can sell a lower price call if they expect the stock to plummet in the near term but they are bullish on the longer term. What they are looking to do is collect the call premium and hope it expires worthless. And then again 'hope' that the stock will ultimately turn around. So yes, a lot of hoping.

But can you explain what you mean by 'my brokerage gives premiums for prices lower than the current price'? Do you mean you pay less in commissions for ITM calls?

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