If you close a short call to keep your shares upside potential, the true cost of keeping your shares is the pnl of the short call?
So if I sold a short call @ .69 and closing it @ 1.54 = -0.85 * 1500 = -$1278
I can't get to that number if I work through it.
Premium received
$1,035.00 (.69*1500)
Cost to close short call & keep stock (1.54*1500)
$2,313.50
Net (1035-2313.50)
-$1,278.50
Stock gains since opening the short call (18.02 - 16.90) - net loss.
$1,680.00 - $1278 = 402
Is this arbitrage?
Its pretty close if I calc having shares called away at strike versus at market:
1500*16.50=24750
1500*18.02=27030
=-2280 + 1035= -$1245.00
Example #1: Buy MARA @ 17 and sell 16 Call for 1.20
Stock drops to 16.70. Call drops to 1.06
You close early: Stock loss =.30 Call profit =.14 Total loss = .16
You let it go to expiration. As long as stock stays above 16 the Total profit =.20
Example #2: Buy MARA @ 16.50 and sell 16 Call for .90
Stock rises to 16.70. Call rises to 1.06.
You close early: Stock profit =.20 Call loss =.16 Total profit =.04
You let it go to expiration. As long as stock stays above 16 the Total profit =.40
You will always make LESS if you close early and the stock stays above the short call unless there's ZERO extrinsic value in the short call in which case you'll make the same as waiting until expiration.
The amount of extrinsic value in the short call at exit is the amount of profit you're giving up if you close early.
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