Covered Calls and Expiration Issues

D

DataCruncher

Let's say you buy some stock and sell some covered calls against it. You are using a brokerage that does not allow you to sell calls unless they are covered. Tomorrow, at 4pm, the calls you sold are worthless. Are they officially worthless as of 4pm, or not until over the weekend when the options contracts are settled? Will the brokerage allow you to sell your stock in the aftermarket after 4pm on Friday, or will it not because according to their system the options you sold are not officially worthless yet, and thus according to their system/software you cannot sell any stock when you have sold calls against it?

I do not want to have to hold the stock over the weekend, I would like to sell it in the aftermarket on Friday.

If I did have to buy back the calls before I sell the stock, I could try to buy them at say 3:50pm. But if they are about to expire worthless, what kind of liquidity will there be on the calls? Will I have to pay some outrageous ask price to buy back the calls?
 
Quote from DataCruncher:

Let's say you buy some stock and sell some covered calls against it. You are using a brokerage that does not allow you to sell calls unless they are covered. Tomorrow, at 4pm, the calls you sold are worthless. Are they officially worthless as of 4pm, or not until over the weekend when the options contracts are settled? Will the brokerage allow you to sell your stock in the aftermarket after 4pm on Friday, or will it not because according to their system the options you sold are not officially worthless yet, and thus according to their system/software you cannot sell any stock when you have sold calls against it?

I do not want to have to hold the stock over the weekend, I would like to sell it in the aftermarket on Friday.
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Options expiration is Saturday morning. Thus, the options are NOT worthless after the closing bell rings.

If you do not want to hold stock over the weekend, the prudent thing to do is buy back the calls - hopefully for a penny or two and sell your stock - before 4PM.

If commissions are too high, many brokers charge a much lower fee when you close short options at a very low price. Call broker to ask the cost.

Mark
 
dagnyt,
If I did have to buy back the calls before I sell the stock, I could try to buy them at say 3:50pm. But if they are about to expire worthless, what kind of liquidity will there be on the calls? Will I have to pay some outrageous ask price to buy back the calls?
 
Quote from DataCruncher:

dagnyt,
If I did have to buy back the calls before I sell the stock, I could try to buy them at say 3:50pm. But if they are about to expire worthless, what kind of liquidity will there be on the calls? Will I have to pay some outrageous ask price to buy back the calls?
More...

If you want to buy a worthless option, there will be loads of liquidity. The market makers will be anxious to sell - at 5 cents. If you bid 2 cents, there's still a good chance someone will sell to you.

If they are far out of the money, you will never have to pay more than $0.05. But whatever you do, DO NOT ENTER A MARKET ORDER.

If your plan is to buy them back, why wait? You can bid $0.02 (or whatever price you are willing to pay early. Like right NOW. It cannot hurt to give yourself more time to get them, rather than just those last 10 minutes.

And if you do buy back early, you have a new alternative: You can sell your stock (as planned) or you can write a new covered call with a later expiration date.

Mark
http://blog.mdwoptions.com/options_for_rookies/
 
Quote from DataCruncher:

Let's say you buy some stock and sell some covered calls against it. You are using a brokerage that does not allow you to sell calls unless they are covered. Tomorrow, at 4pm, the calls you sold are worthless. Are they officially worthless as of 4pm, or not until over the weekend when the options contracts are settled? Will the brokerage allow you to sell your stock in the aftermarket after 4pm on Friday, or will it not because according to their system the options you sold are not officially worthless yet, and thus according to their system/software you cannot sell any stock when you have sold calls against it?

I do not want to have to hold the stock over the weekend, I would like to sell it in the aftermarket on Friday.

If I did have to buy back the calls before I sell the stock, I could try to buy them at say 3:50pm. But if they are about to expire worthless, what kind of liquidity will there be on the calls? Will I have to pay some outrageous ask price to buy back the calls?
More...

There is another way to do it. It does not require you to buy those worthless options for a price, and in addition pay option commissions. It is outrageous.

PM me, and I will show you how to do it the smarter way. There is even a side effect to it that can lead to some additional profits.

You will know when you read what I will let you know of.
 
If you really feel compelled to buy back an otm call instruct your broker to request a cabinet trade. Cabinets are done for a premium of $1 for the contract. There is no multiplier just a dollar. Traditionally done to establish a firm cost basis.
 
Quote from ajacobson:

If you really feel compelled to buy back an otm call instruct your broker to request a cabinet trade. Cabinets are done for a premium of $1 for the contract. There is no multiplier just a dollar. Traditionally done to establish a firm cost basis.
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Now that options trade at penny increments, there is no longer a need for cabinet trades.

Do know for sure if they still exist? If anyone bids $0.01, the bid will be seen by more people who own the options than cabinet bids.

Mark
 
Quote from DataCruncher:

for options that have a bid ask of 0.00 X 0.05, do you think that there are hidden orders with an ask of 0.01?
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NO. But consider this: Too many morons enter market orders to trade options. It's best to offer at $0.05 and then hit any bid that appears on the screen.

By choosing not to show the best bid or offer, the market makers get some excellent prices.

Mark
 
Quote from dagnyt:

NO. But consider this: Too many morons enter market orders to trade options. It's best to offer at $0.05 and then hit any bid that appears on the screen.

By choosing not to show the best bid or offer, the market makers get some excellent prices.

Mark
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thanks. I'm just wondering how realistic it would be for me to be filled if i put in a bid of 0.01 at like 3:45pm and the option is about to be worthless
 
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