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I recently started looking at trading options and started with the time honored tradition of selling a covered call. What I don't understand now is what my trading platform (TD Ameritrade) balances are showing me. I sold 1 XYZ Apr 15 80 Call @ 1.00, but my transaction history shows: "Sold -1 XYZ Apr 15 2016 80.00 @1.00". The amount of the sale is a positive +89.22 in my ledger though I see a -89.22 against my cash funds. When I go look at my current holds I see I have 100 shares of XYZ along with a -1 XYZ Apr 15 2016 call. In short I can't make heads or tails of the entries or determine whether the premium was captured.

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Option contracts typically each represent 100 shares. So the 1 call contract you sold to open (wrote) grants the buyer of that option the right to purchase your 100 shares for $80.00 per share any time before the option expiration date.

You were paid a gross amount of $100 (100 shares times $1.00 premium per share) for taking on the obligation to deliver should the option holder choose to exercise.

You received credit in your account of $89.22, which ought to be the $100 less any trading commission (~$10?) and miscellaneous fees (regulatory, exchange, etc.) per contract.

You did capture premium. However, your covered call write represents an open short position that, until either (a) the option expires worthless, or (b) is exercised, or (c) is bought back to close the position, will continue to show on your account as a liability.

Until the open position is somehow closed, the value of both the short option contract and long stock will continue to fluctuate. This is normal.

  • Chris, thanks, that makes sense to me. I see in my Positions I have -1 Option that "cost me" -100.00. The stock has since fallen a bit further from the $80 strike so the underlying option on the open market is now at a Bid/Ask of 0.45/0.55. This shows up as a "Market Value of -50.00" which is confusing. Another way to put it (not a pun) is, what should I be monitoring in my Positions that would cause me to take any action with this option? – Joe Mar 8 '16 at 14:02
  • Depends. If underlying goes to $80+ and it's a stock you want to hold (i.e. don't want it called), you could buy back the call to close your open position, but you'll probably pay more than received and realize a loss on the write. If you don't care if the stock is called, let that happen and keep the collected premium + proceeds from the share sale at exercise price, less assignment fees. Or, if the underlying is <$80 by expiration, can let the option expire worthless. Or, if you really want out of the stock (it got bad?) earlier than expiry, close the option position and sell the stock. – Chris W. Rea Mar 8 '16 at 14:21
  • If before expiry you see the option premium decay to a point where you can buy it back for much less than you received, it may make sense to close it early and, say, write another, but you'll incur more fees and spread costs. – Chris W. Rea Mar 8 '16 at 14:22

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