Ok. Convoluted but I'm curious.
If I buy 1000 shares of a stock at $98 today in January.
And then I sell ten Jun 21 2024 $100 calls for $5. (collect $5k credit)...
What happens if the stock goes to $102 in a week? Do I immediately get my shares taken away to pay off the Jun call options.
Seems like a pretty sweet deal....or do you have to hold margin and options until jun?
Any help appreciated in clarifying this for me...thanks
The holder of the call options has the right to exercise them at any time.
The length of time that the position will remain open is difficult to predict.
Sometimes,
if the stock pays a dividend, you can anticipate an early exercise just before the ex-dividend date.
But there is no definite way to predict when the calls will be exercised. It is even possible that they will
never be exercised. In your example, the price of the stock could
fall below $100 the following week, and never rise above $100 again, and the calls you sold would expire worthless without being exercised.
Your question, and your reference to "holding" margin and options until June, indicates that you do not have a complete understanding of some of the most basic concepts of how options work.
You need a margin account to trade options, but you do not need to
use margin to establish the position you are describing.
The short answer is that in the example you gave, you have to be prepared to have your $98,000 tied up until June. Of course, you can exit the position before then, but that would involve
buying back the calls. If the price of the stock has risen, you will have to buy them back at a higher price than what you sold them for.
You also need to understand that if the price of the stock falls, you could lose more on the stock than the $5,000 you collected when you sold the calls.
The position you are describing is not a guaranteed profit.
There is no such thing as a guaranteed profit... except maybe in some types of arbitrage.
