45

The price at which you sold the option, or at which someone else bought it, has no bearing on exercise. Someone holding a long option to expiration will exercise it if it's in the money, which this one was. The person exercising it was likely not the same person who bought it from you at $2.55, but even if it was, the fact that they had a loss is irrelevant....


28

You do not understand the fundamentals of options. This option assignment and loss of your stock is the result of that. With all due respect, get a good options book and spend some time with it. An in-the-money has intrinsic value. At expiration it is the price of the stock less the strike price. IOW, your call was worth 55 cents. Not exercising meant ...


15

You appear to be thinking of option writers as if they were individuals with small, nondiversified, holdings and a particular view on what the underlying is going to do. This is not the best way to think about them. Option writers are typically large institutions with large portfolios and that provide services in all sorts of different areas. At the same ...


13

A major principle of decision-making is that one should compare an option to other options you currently have. Much angst and suboptimal behavior is caused by people instead making their decisions based on comparing an option they have to an option they don't have (just in case it's not clear, I mean "option" as in "a possible course of action", not "stock ...


10

I do this often with shares that I own - mostly as a learning/experience-building exercise, since I don't own enough individual stocks to make me rich (and don't risk enough to make me broke). Suppose I own 1,000 shares of X. I don't expect my shares to go down, but I want to be compensated in case they do go down. Sure, I could put in a stop-loss order, ...


6

When you enter into a multi-legged trade where one is a buy and one is a sell, the limit is expressed as either: A "net credit" - the minimum you need to collect to do the whole thing, or A "net debit" - the most you'd pay to do the whole thing. The gist is that you don't care what each individual piece costs; you only care what the cost of the bundle is. ...


5

I have an example of a trade I made some time ago. Stock price - $7.10 $7.50 call option 16 months out $2. By entering the position as a covered call, I was out of pocket $5.10, and if the stock traded flat, i.e. closed at the same $7.10 16 months hence, I was up 39% or nearly 30%/yr. As compared to the stock holder, if the stock fell 28%, I'd still ...


5

Options that trade in the U.S. are either American (stocks and ETFs) or European (most indexes) style. The owner of an American style option may exercise it at any time during the life of the contract. A European style option can only be exercised at expiration. Exercise before expiration isn't very common. Per 2017 stats from the Option Clearing ...


4

The different levels are somewhat related to levels of risk. Writing a covered call is pretty low risk, in the sense that if I buy the stock but sell a call, I now have a lower cost for the stock, and however low the stock drops, I'm still slightly better off than the regular stock buyer. Covered call writing is often used to generate premium income from a ...


4

the call buyer might prefer to exercise the option as soon as it's in the money, and not wait until expiration (when it might be out of the money). Not really. Suppose you have an american option to buy a non-dividend-paying stock at $50 that expires in one month. The stock is currently trading at $45. True, you could exercise now and pocket an easy $5, but ...


4

No, the IRS expects you to report the gains/losses in the year they occurred. Your brokerage will report this to the IRS in the proper year, so you'd have issues from the jump if you tried to claim the gains for the prior year. Note that the $39,375 threshold for the 0% long-term capital gain rate is based on taxable income (AGI - deductions), so you can ...


4

First, a small correction in terminology. In a covered call you sell a short call not a long call. Dividends do not boost profits because the stock exchanges reduce share price by the amount of the dividend on the ex-dividend date. You could go so far as to suggest that a dividend 'boosts' the potential profit of the covered call but in truth, proper ...


3

No, something doesn't seem right here. There would be virtually no time value to the option 10 minutes before market close on the expiration day. What option is it, and what is the expiration? EDIT: It appears you were looking only at the ASK price. It was $2.05. However, the BID price was only $1.35 and the last transaction was $1.40. So the true value ...


3

Is the other side of my contract tied to a specific buyer? No, the OCC is the entity on the other side of your transaction. If I'm short a call, and the contra exercises their option, how is that assignment tracked back to me? It's not - the OCC selects one of its clearing members (generally brokers) at random, and that firm then assigns one of its ...


3

"Covered calls", that is where the writer owns the underlying security, aren't the only type of calls one can write. Writing "uncovered calls," wherein one does NOT own the underlying, are a way to profit from a price drop. For example, write the call for a $5 premium, then when the underlying price drops, buy it back for $4, and pocket the $1 profit.


3

Yes, as long as you write a call against your stock with a strike price greater than or equal to the previous day's closing price, with 30 or more days till expiration there will be no effect on the holding period of your stock. Like you mentioned, unqualified covered calls suspend the holding period of your stock. For example you sell a deep in the money ...


3

I often sell covered calls, and if they are in the money, let the stock go. I am charged the same fee as if I sold online ($9, I use Schwab) which is better than buying back the option if I'm ok to sell the stock. In my case, If the option is slightly in the money, and I see the options are priced well, i.e. I'd do another covered call anyway, I sometimes ...


3

There are two possibilities: Settlement of the stock hasn't shown up in your account and will do so by Monday morning You are the most incredibly lucky guy in the option writing world (not likely)


3

Selling a covered call locks in a sale price and should the contract be assigned, you will receive the strike price plus the premium received. Therefore, one should only sell a covered call if one is willing to sell the underlying at a target sale price. While waiting for that price, you'll receive a premium (income) which lowers your cost basis modestly. ...


2

There is no reason to roll an option if the current market value is lower than the strike sold. Out-of-the-money strikes (as is the $12 strike) are all time value which is decaying constantly and that is to our advantage. If share price remains below the strike, the option will expire worthless, you will still have your shares and free to sell another option ...


2

When the strike price ($25 in this case) is in-the-money, even by $0.01, your shares will be sold the day after expiration if you take no action. If you want to let your shares go,. allow assignment rather than close the short position and sell the long position...it will be cheaper that way. If you want to keep your shares you must buy back the option prior ...


2

It is because of how margin is calculated. There are inefficiencies in that margin structure, especially when it comes to options because you can basically draw your own risk graph and profile with a set of options contracts and underlying assets. A covered call does not require any margin really, to initiate the position. A naked put does require margin ...


2

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.


2

It's a covered call. When I want to create a covered call position, I don't need to wait before the stock transaction settles. I enter it as one trade, and they settle at different times.


2

As far as selling a covered call is concerned, reasons could be lowering volatility, liking a steady stream of money, wanting to reduce risk but hold onto the stock for some reason, or thinking the market has overestimated volatility: if the current price is $100, and the market thinks it could vary by $10, and you think it will vary by only $5, then calls ...


2

It will depend on your broker's policies, but yes you should be able to withdraw the cash just as if you had sold stock. From a collateral standpoint there's nothing that the cash will be needed for later (unlike, say, selling a covered call where you need to hold the underlying stock to ensure that the call can be exercised).


2

The premium for a $39 call will be higher than that of a $40 call (same series). The lower call strike will have a higher probability of being assigned since the stock (XYZ) must rise less to reach the strike price. The delta of the call is an approximate of the probability that the call will be in-the-money (ITM) at expiration while Probability of Touch is ...


2

By definition, you are 'losing upside potential' when you write a covered call (CC). It has an asymmetric risk profile with a limited upside while bearing most of the downside risk. The delta of the call represents how much the call will deteriorate for the first dollar of underlying loss. Since delta declines as share price drops, the smaller delta gets,...


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