10

If the buyer exercises your option, you will have to give him the stock. If you already own the stock, the worst that can happen is you have to give him your stock, thus losing the money you spend to buy it. So the most you can lose is what you already spent to buy the stock (minus the price the buyer paid for your option). If you don't own the stock, you ...


6

Here are some things to consider if you want to employ a covered call strategy for consistent returns. The discussion also applies to written puts, as they're functionally equivalent. Write covered calls only on fairly valued stock. If the stock is distinctly undervalued, just buy it. By writing the call, you cap the gains that it will achieve as the stock ...


6

You own the stock at $29.42 At $40, the stocks is called at $26. You can't add the call premium, as it's already accounted for. The trade is biased towards being bearish on the stock. (I edited and added the graph the evening I answered) Not the pretiest graph, but you get the idea. With that $29.42 cost, you are in the money till about $30, then go ...


5

Put more money into the account. You have to demonstrate that you have the cash to back your bets. If you don't have the money, and you're unemployed, then what are you doing messing around with a margin account? It's time to get back to work. The only case where the broker might extend this to you is if you had demonstrated success as a trader; such as a ...


5

You can buy some S&P futures or go one step further and buy the underlying stocks that compose the index (which is what future/cash arbitrageurs do). But unless you are interested in a very specific arbitrage, buying SPY and selling calls on SPY would by and large achieve the same outcome.


5

The author is wrong in saying that buyers of calls almost always hold the calls until expiration. According to stats provided by the CBOE for 2017: 1) About 10% of options were exercised (gain or loss) 2) About 60% were closed before expiration 3) About 30% expired worthless In your scenario, if you bought $50 calls and two weeks later the stock rose to ...


4

The SPDR® S&P 500 ETF Trust (symbol SPY) seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500 Index. https://us.spdrs.com/en/etf/spdr-sp-500-etf-SPY Options are available on the SPY: http://www.optionistics.com/quotes/stock-option-chains The call's premium will ...


3

When you write (sell) an option, you must be covered or you must put up margin. For margin purposes, covered means that you: Own the underlying stock Own a call with same or lower strike price with the same or longer expiration Long a security convertible into the underlying stock Long a warrant with a lower exercise ...


3

Equity options are American style so the owner of a call has the right to exercise it at any time. If the stock rises significantly above $110, you may be assigned early and your shares will be sold. This is somewhat more likely if there is a pending dividend and the ITM short call has no time premium remaining. The Options Clearing Corporation will ...


3

Yes, in principle this can happen, although you usually only get the notice the day after the option was exercised, due to the assignment process. In practice, however, the only time an early exercise may make sense is just before the ex-dividend day. In all other cases it is better to sell the option again instead of exercising it.


3

Long shares sold directly by the trader (or shares bought to cover a short position) default to FIFO unless the trader designates to his broker what shares are to be sold at the time of the trade. Prior to expiration, through a random process utilizing a "wheel", the OCC determines who will be assigned. That is then passed onto the broker who may have ...


3

You can buy shares of exchange traded funds and sell covered calls on those funds. Look at SPY, VOO, & IVV as some common examples.


2

FYI: GM has an earnings announcement on April 24th. I think you were trying to create a safe trade by profiting if GM's price fell within a probable range. The chart of the Iron Condor captures just about a standard deviation of movement. So as long as GM is between 31.28 - 37.22 in 34 days you keep the max profit of $110. Note this trade is a net ...


2

My employer matches 1 to 1 up to 6% of pay. They also toss in 3, 4 or 5 percent of your annual salary depending on your age and years of service. The self-directed brokerage account option costs $20 per quarter. That account only allows buying and selling of stock, no short sales and no options. The commissions are $12.99 per trade, plus $0.01 per share over ...


2

The math in these answers and comments is correct but most have mistakenly compared the opportunity risk of a covered call with the upside short risk of a naked call (the underlying rising in both positions). Comparing the two properly requires defining whether to strike price sold is in-the-money, at-the-money, or out-of--the-money ... and the answer ...


2

Let's start with some confusion in the wording of your question. A covered call involves owning the stock and selling a covered call. This is also called a Buy/Write and when placing a simultaneous order that involves executing both positions, it is a buy order to open (buy stock and sell the call). If you already own the stock then you place a sell ...


2

Your three options are: Buy back the calls but keep the stock, taking a net 5K loss, Buy back the calls and sell the stock, for a net 10K gain, or Let the options settle, netting a 10K gain. Options 2 and 3 are obviously identical (other than transaction costs), so if you want to keep the stock, go for option 1, otherwise, go for option 3 since you have ...


2

If your broker provides rebates for borrowed stock and your stock is one that is in demand for borrowing then yes, you can increase the return on your long positions by providing them to your broker for lending to those who wish to short stock. A covered call has nothing to do with this. If a lender sells his stock directly or the stock is sold because a ...


2

The put will expire and you will need to purchase a new one. My advise will be that the best thing is to sell more calls so your delta from the short call will be similr to the delta from the equity holding.


2

Your analysis is correct other than a conclusion of it being easy money. The first problem I see is the 7-8% premium per week. If you're evaluating an ITM option then you have to calculate return if unchanged and return if the option expires. If ITM, the intrinsic value is premium but it is not profit unless the stock rises and the option expires. If ...


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

If you bought the stock at $50 and sold the Jan 15th 50 call for $1.05 then ignoring commissions, your assigned sale price is $51.05 and $1.05 is your potential profit. If you buy the Jan 15th 50 call to close for $3.50 and sell to open the Feb 15th 50 cal for $4.50 then you receive a $1.00 credit for the roll out. You are still obligated to sell the ...


2

Income or loss is recognized when the short call is closed (buy to close), it expires, or the short call is assigned. If the call expires worthless, the premium received is considered a short-term capital gain regardless of the length of time that the position was open. If the short call is closed prior to expiration (BTC), the capital gain or loss is ...


1

If you have account approval to sell options and to short stock then you can sell a covered put as long as you have sufficient margin to support the transaction. A covered call is synthetically equivalent to a short put. A covered put is synthetically equivalent to a short call. In both cases, unless you are legging into the position, it would make no ...


1

As I understand it, an OTM covered calls is not an offsetting position and therefore it has no effect on the status of stock. It is considered a qualified covered call (QCC). The rules for QCC apply to writing ITM calls. In general, the call must have more than 30 days until expiration and the strike cannot be lower than the strike immediately below ...


1

No, if your stock is called away, the stock is sold at the agreed upon price. You cannot get it back at your original price. If you don't want your stock to be called, make sure you have the short call position closed by expiration if it is ITM. Also you could be at risk for early assignment if the option has little to no extrinsic value, although probably ...


1

A covered call risks the disparity between the purchase price and the potential forced or "called" sale price less the premium received. So buy a stock for $10.00 believing it will drop you or not rise above $14.00 for a given period of days. You sell a call for a $1.00 agreeing to sell your stock for $14.00 and your wrong...the stock rises and at 14.00 or ...


1

There is unlimited risk in taking a naked call option position. The only risk in taking a covered call position is that you will be required to sell your shares for less than the going market price. I don't entirely agree with the accepted answer given here. You would not lose the amount you paid to buy the shares. Naked Call Option Suppose take a naked ...


1

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 ...


Only top voted, non community-wiki answers of a minimum length are eligible