I have been doing some research and am thinking of selling a Covered Call on a stock I currently own and am planning on holding long term. I would like to make an Out-of-the-Money Covered Call (OTM CC), which from my understanding limits my potential gains but would allow me to pocket the contract premium and only have to sell the stock if the option became in-the-money (Stock price went above the call option strike price). In that case I lose out on any gains above the strike price, but since the strike price would be set higher than the current price I would still sell the stock at a profit.
That sounds good to me, but what I am not sure about is the fees that my brokerage will charge. I currently have the Advantage program from Sharebuilder.com, which states the following fee structure:
- $7.95 per real-time trade
- $0.75 per options contract
- $30 per early exercise, no trade commission for
"long call or put options positions"
- $20 per automatic exercise, no trade commission for
"long call or put options positions that finish in the money"
- $20 per assignment, no trade commission for
"Owners of short call option contracts that are assigned an exercise notice prior to expiration or let their short call option finish in-the-money"
Number 1 is what I am use to paying to buy or sell stocks, and for options trading it appears they add $0.75 per contract. I'd only be selling one contract (100 shares), So I assume the base trading fee would only be $8.70. My concern is regarding the option exercise and assignment fees. I believe OTM CC options are short call options, so the early exercise and automatic exercise fees should not apply, but I could be wrong. I understand that calls are usually automatically exercised by the owner when they expire if they are in-the-money, but I also read that "The option holder has the right to exercise his or her options position prior to expiration regardless of whether the options are in- or out-of-the-money". I assume this means that if the option expires in-the-money or is assigned I will receive an additional $20 fee.
This means my total fees for one OTM CC would be $8.70 up front and $20 if it is exercised. Is this correct? Are there any other fees I should be ware of?