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47 votes

Why do people exercise call options at a loss?

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 ...
nanoman's user avatar
  • 29.7k
30 votes

Why do people exercise call options at a loss?

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 ...
Bob Baerker's user avatar
  • 76.6k
14 votes

Why do people exercise call options at a loss?

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 ...
Acccumulation's user avatar
11 votes
Accepted

Why naked call writing is risky compare to Covered call?

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 ...
BrenBarn's user avatar
  • 24k
7 votes

I was denied a margin account for being unemployed, what should I do?

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 ...
kmiklas's user avatar
  • 183
7 votes
Accepted

What happens to the 100 shares if someone "sell to close" their call option position?

If Nora sells a call, she closes her position but the person who bought the call now has an option on your shares. Until that person exercises the call you still own the shares. If the stock price is ...
Ross Millikan's user avatar
5 votes
Accepted

Why hold calls until expiration?

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 ...
Bob Baerker's user avatar
  • 76.6k
5 votes

What is QYLD ? (NASDAQ: QYLD)

They make money by selling options (covered calls). They sell those "in the money" which means at prices lower than the current price. This means that one gets money immediately but if the ...
Manziel's user avatar
  • 7,442
4 votes
Accepted

Robinhood covered calls

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 ...
Bob Baerker's user avatar
  • 76.6k
4 votes

How to buy a contract for S&P 500 index?

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://...
Bob Baerker's user avatar
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4 votes
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Risk of selling stock cash secured puts and covered calls

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 ...
Bob Baerker's user avatar
  • 76.6k
4 votes
Accepted

Can I select lots for exercised covered calls on transferred shares where I'm tracking the cost basis?

When you sell shares (no options involved): If you plan to use any method besides FIFO, including LIFO, you must specifically direct your broker as to which shares to sell so that your taxes end up ...
Bob Baerker's user avatar
  • 76.6k
4 votes
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Can a buy order be skipped when price rises rapidly?

If you place a limit order to buy and price gaps through your limit price, you will not get to buy additional shares. If you place a conditional order that becomes a market order if a certain price is ...
Bob Baerker's user avatar
  • 76.6k
3 votes
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Tax implications of rolling covered calls

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 ...
Bob Baerker's user avatar
  • 76.6k
3 votes
Accepted

Selling covered calls does not make sense

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 ...
Bob Baerker's user avatar
  • 76.6k
3 votes
Accepted

How to reduce margin requirement when shorting calls?

The Federal Reserve Board sets margin requirements via Reg T. For narrow based index options such as the VIX, it's: 100% of option proceeds plus 20% of underlying security/index value less out-of-...
Bob Baerker's user avatar
  • 76.6k
3 votes

How to buy a contract for S&P 500 index?

You can buy shares of exchange traded funds and sell covered calls on those funds. Look at SPY, VOO, & IVV as some common examples.
NL - Apologize to Monica's user avatar
3 votes

Covered call on stock held for different periods

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. ...
Bob Baerker's user avatar
  • 76.6k
3 votes
Accepted

Selling Covered Calls, will online broker sell shares automatically?

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. ...
Bob Baerker's user avatar
  • 76.6k
3 votes

Buying back a covered Call

Your three options are: Buy back the calls but keep the stock, taking a net 5K loss (plus a 15K unrealized gain on the stock), Buy back the calls and sell the stock, for a net 10K gain, or Let the ...
D Stanley's user avatar
  • 136k
3 votes

What category is the following: Naked call or covered write

When you buy the stock just before the close on Monday afternoon, you own it and all of the subsequent profit or loss accrue to you. The same holds true for the short ITM call. Settlement is ...
Bob Baerker's user avatar
  • 76.6k
3 votes
Accepted

Is there something like a covered call for futures?

Actual options on futures do exist (described in SRiverNet's answer), but this doesn't seem to be what you're referring to. Rather, you're drawing an analogy between a short futures contract and a ...
nanoman's user avatar
  • 29.7k
2 votes
Accepted

Borrowing share with a covered call for short?

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 ...
Bob Baerker's user avatar
  • 76.6k
2 votes

Buying Covered Calls

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 ...
Bob Baerker's user avatar
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2 votes
Accepted

Approach to roll down a Covered Call

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 ...
Bob Baerker's user avatar
  • 76.6k
2 votes

Is it profitable to roll an ITM covered call

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 ...
Bob Baerker's user avatar
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2 votes
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What to do with a call I sold

The best thing to do depends on what the stock actually does going forward. If NCLH is above $16 at tomorrow's close, you will be assigned and your shares will be sold at $16. If you buy back your ...
Bob Baerker's user avatar
  • 76.6k
2 votes

Covered call buy back

If you buy the call back before expiration, the $4,000 will be considered a short term loss regardless of the length of time that the option position was open (short sales are treated as short-term ...
Bob Baerker's user avatar
  • 76.6k
2 votes
Accepted

Is there capital loss on called shares

The $115 in premium is part of the sell price ($1265) and you have a $30 gain. From page 58 of IRS publication 550: If a call you write is exercised and you sell the underlying stock, increase your ...
Bob Baerker's user avatar
  • 76.6k
2 votes

How to manage covered call position when stock price goes down

Covered calls have an asymmetric risk/reward and your example depicts that. You bear all of the downside risk while having the potential for a limited profit. AFAIC, this strategy is appropriate for ...
Bob Baerker's user avatar
  • 76.6k

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