46

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....


29

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

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 ...


11

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 ...


7

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? The only case where the broker might extend this to you is if you had demonstrated success as a trader; such as a 10% profit for the last 5 years, ...


7

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

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

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 ...


4

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 ...


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 ...


4

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 the way you want. According to Internal Revenue Service Publication 550, the burden is on you to prove that you informed your broker of which shares you wanted ...


4

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 reached then you'll buy shares but who knows what the price might be? For example, with TSLA at $700, you sell an $800 covered call and you place an order to ...


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

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 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, ...


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.


3

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 ...


3

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-the-money amount, if any, to a minimum for calls of option proceeds plus 10% of the underlying security/index value, and a minimum for puts of option proceeds ...


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. ...


3

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 effectively just back office procedure. If you are assigned on Tuesday, the call is settled on Wednesday (T+1) and the sale of the underlying is settled on Thursday (...


3

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 short call option. You are correct that the risk of a large loss from a short futures contract is offset by owning a corresponding quantity of the underlying. But ...


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

Suppose the stock is $41 at expiry. The graph says I will lose money. I think I paid $37.20 for (net debit) at this price. I would make money, not lose. What am I missing? The `net debit' doesn't have anything to do with your P/L graph. Your graph is also showing your profit and loss for NOW and only one expiration. Your trade has two expirations, and I don'...


2

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


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

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

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

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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