covered call profit and loss question

Yeah, I'm a newbie to options. i thought this forum would be the right place to ask questions.

I asked "what losing stocks" because the answer didn't match the context of what was asked.

If the stock is at or over the strike price at expiry, there won't be any "losing stocks." Heck, if the stock is over $37 there wont be any "losing stocks".

That reply sounded like it was aimed at someone who bought a basket of stocks and sold covered calls on them all. Then in that case, there would likely be some losing stocks.

It's curious how after I give specific data, I don't get any replies that begin with "no, you have it right" or "here's where you went wrong." That would've actually been helpful.
 
Quote from IronFist:

Here i'll just post the position info:

I have 100 shares of SSO with an average cost of $36.54.

My target profit is $43.

The other day I sold an Oct 43 call for $58.74 after commissions.

The thought was if it goes up to $43 I would sell it for $646, but why not get a little extra in the form of an option premium?

So I thought that now, if it closes at $43 or higher, I should get $704 (minus whatever commissions).

Is that incorrect?

Right now, at $42.25, my gain/loss report says:

SSO: +$570
Call: -$69.26

Ok, please help me understand what I am missing.
More...

You are correct.

Dont worry about that -69.26 that just means you would have to pay 69.26 dollars to get rid of the call.

If you dont care about the stock being assigned away on saturday after expiration then dont worry about it.

What will happen on monday after expiration will be you will have the cash value in your account of the stock sold for the strike price and of course your premium as well.

You will not lose money.

Now if the stock itself goes to zero then you lose all the money except the premium you collected.

You will be fine leave it as is and let it get called away or if not you can write another call monday once the first call expired.
 
Quote from IronFist:

Yeah, I'm a newbie to options. i thought this forum would be the right place to ask questions.

I asked "what losing stocks" because the answer didn't match the context of what was asked.

If the stock is at or over the strike price at expiry, there won't be any "losing stocks." Heck, if the stock is over $37 there wont be any "losing stocks".

That reply sounded like it was aimed at someone who bought a basket of stocks and sold covered calls on them all. Then in that case, there would likely be some losing stocks.

It's curious how after I give specific data, I don't get any replies that begin with "no, you have it right" or "here's where you went wrong." That would've actually been helpful.
More...

your questions have been answered several times because there are more than a few helpful posts that answer your questions and go above and beyond to explain this strategy. hopefully, you see how this strategy when used over a period of time will allow your winners to go away and your losers to stay with you and hurt your account. now, to be crystal clear, i understand that you are trading 1 call and 100 shares of stock. i can't think of a way to be more helpful.
 
@kingofshorts - thanks, so I had it right all along, I just got confused cuz of the loss that was showing.

@davyc - I understand about the winning stocks getting called away. I wouldn't write covered calls on a stock that I needed/wanted to turn into a big winner or homerun. I would only write a call on a stock that I was already planning on selling at a specific price.
 
This thread is also interesting to me as I am trying to learn more about covered calls to possibly use some to unload potentially large positions of SPY in the future.

Does an option ever get assigned before expiry if it gets deep in the money?
 
Quote from IronFist:

Here i'll just post the position info:

I have 100 shares of SSO with an average cost of $36.54.

My target profit is $43.

The other day I sold an Oct 43 call for $58.74 after commissions.

The thought was if it goes up to $43 I would sell it for $646, but why not get a little extra in the form of an option premium?

So I thought that now, if it closes at $43 or higher, I should get $704 (minus whatever commissions).

Is that incorrect?

Right now, at $42.25, my gain/loss report says:

SSO: +$570
Call: -$69.26

Ok, please help me understand what I am missing.
More...

do not take the Series7

lmao
 
Quote from iceman1:

do not take the Series7

lmao
More...

Instead of posting that, you could've posted something helpful and corrected him because it seems correct to me, too, based on what I have read about how covered calls work. But I don't know anything about options, either.
 
Quote from IronFist:

Here i'll just post the position info:

I have 100 shares of SSO with an average cost of $36.54.

My target profit is $43.

The other day I sold an Oct 43 call for $58.74 after commissions.

The thought was if it goes up to $43 I would sell it for $646, but why not get a little extra in the form of an option premium?

So I thought that now, if it closes at $43 or higher, I should get $704 (minus whatever commissions).

Is that incorrect?

Right now, at $42.25, my gain/loss report says:

SSO: +$570
Call: -$69.26

Ok, please help me understand what I am missing.
More...
Yes, you have the profit numbers right IF SSO is at 43 or higher at expiration. The problem is that you're getting hung up on the brokerage statement.

Right now you have a $570 gain on the stock and a $70 loss on the option. You're ahead by $500.

If SSO is 43 at expiration, you will get another $75 from the stock since you have agreed to sell it at 43. The option will be worthless and that current $69 paper loss will turn into a $58 gain Add em up. $500 + $75 + $70 +$59 = $704 which is what you got.


The short answer today is:

Forget the -$69. You're $500 ahead.


The short answer if assigned is

1) $646 gain from the stock

2) $58 gain from the call

3) Maximum gain $704
 
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