A covered call related question

[traderwald]

Hi guys,

I have a basic question about covered call. If I have a covered call for an underlying (underlying price = $200) and strike price of covered call is $210 and premium is $5. If the covered call is ITM and gets assigned or is ITM on its last date of validity, then as I understand, I can have the $5 premium + the $10 increase in profit from stock price increase making total profit $15 is that correct ? Or is it only the $10 profit on the stock that would be there for this scenario while the option position gets closed (buy transaction) at $5 making the profit $0 for the long call position?

 

[tommcginnis]

Hi guys,

I have a basic question about covered call. If I have a covered call for an underlying (underlying price = $200) and strike price of covered call is $210 and premium is $5. If the covered call is ITM and gets assigned or is ITM on its last date of validity, then as I understand, I can have the $5 premium + the $10 increase in profit from stock price increase making total profit $15 is that correct ? Or is it only the $10 profit on the stock that would be there for this scenario while the option position gets closed (buy transaction) at $5 making the profit $0 for the long call position?

So if I follow this (it's a Saturday night, and beer has been nice-to-know-ya), you've got
stock at $211 (let's say)
stock bought at $200 -- current position profit $11
call at $210, sold at $5.
What's the situation as it stands right now, 15 figurative seconds before expiration?

$5 premium stays in your pocket.
the call disappears (let's assume costlessly),
as does your $211 stock -- which you sold at $210 per the call.
(The $211 is now irrelevant -- it's the boon to the next guy.)
Your profit on the stock remains at Purchase-CallStrike = $10
So, a $15 profit on the covered call.

Does that get you where you need to be?

 

[traderwald]

So if I follow this (it's a Saturday night, and beer has been nice-to-know-ya), you've got
stock at $211 (let's say)
stock bought at $200 -- current position profit $11
call at $210, sold at $5.
What's the situation as it stands right now, 15 figurative seconds before expiration?

$5 premium stays in your pocket.
the call disappears (let's assume costlessly),
as does your $211 stock -- which you sold at $210 per the call.
(The $211 is now irrelevant -- it's the boon to the next guy.)
Your profit on the stock remains at Purchase-CallStrike = $10
So, a $15 profit on the covered call.

Does that get you where you need to be?

Thank you TomMcGinnis.

Yes it does.

Just to add, does it go the same way for Futures contracts and related options as well ?