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12

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 ...


10

The tax comes when you close the position. If the option expires worthless it's as if you bought it back for $0. There's a short-term capital gain for the difference between your short-sale price and your buyback price on the option. I believe the capital gain is always short-term because short sales are treated as short-term even if you hold them open more ...


8

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, ...


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

If your shares get called on stock at a price below what you paid for the stock, your gain or loss depends on what premium you got for the options you sold. "can I deliver shares at that assigned strike using margin or additional capital if I have it? Can the broker just take care of it and let me collect the time premium? " You don't need margin or any ...


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 ...


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

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. ...


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

"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

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 ...


2

It's unclear what you're asking. When I originally read your question, it seemed that you had closed out one options position and opened another. When I read your question the second time, it seemed that you were writing a second option while the first was still open. In the second case, you have one covered and one naked position. The covered call will ...


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

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

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

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 ...


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,...


2

@bob-baerker is correct, but also remember holding period of your stock (long share) will be affected Whats the difference between a qualified and an unqualified covered call? And the article titled Final Qualified Covered Call Regulations Resolve Some Issues, But Raise New Ones


1

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


1

As far as I am aware, the stock can have "qualified dividends", which would normally be the case if the stock was listed in the US and you were able to trade options on it, and held them for 60 days period prior to the dividend being paid. The options themselves are separate securities from the stock and do not pay, nor entitle you to dividends. The ...


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