Time for another not so smart question. I have some stock I inherited but do not really want. I plan to sell it in the next few months but in the meantime, want to sell covered calls against it. An example I am looking at is IVV, currently trading at $462. January calls at $474 are currently selling at $3.50 but at the money calls $462 are selling at about $10. So my question is, if I sell the currently at the money call and it gets exercised at $462 but it ends up trading at $470 at expiration. Will the money I do not profit on the call compensate for the profit I lose when the stock is called from me at $462, even though it is trading at $470 (hypothetically)? Wouldn't I therefore want to sell the more expensive call since I will more or less break even if the underlying moves against what I am expecting it to do? Make sense?
If I sell a covered call, do I automatically break even at exercise
- Thread starter spinn
- Start date
Current price = $462
Sell 462 Call for 10 ($1,000)
Stock closes at or above 462: You sell the stock at 462 plus you keep the $1,000.
Stock closes below 462: You keep the stock and keep the $1,000.
Sell 474 Call for 3.50 ($350)
Stock closes at or above 474: You sell the stock at 474 plus you keep the $350.
Stock closes below 474: You keep the stock and keep the $350.
Three scenarios
1. You have 200 shares of IVV, current price $462. You sell calls with a strike price of 462 at $10 - you get $2000. At expiration, the stock is $470. Your shares are taken away at 462 (not at 474) - you get 462*200 = $92,400. Your total is 92,400+2000 = 94,400
2. You have 200 shares of IVV, current price $462. You sell calls with a strike price of 474 at $3.50 - you get $700. At expiration, the stock is $470. You still have you $470, your sold calls expire worthless, and you can still sell the stock at $470 if you want for the total of 94,000+700 = 94,700
3. You have 200 shares of IVV, current price $462. You hold. At that same expiration date from (1) the price is 470. You sell. You get 470*200 = 94,000
Of course this doesn't take commissions into account.
1. You have 200 shares of IVV, current price $462. You sell calls with a strike price of 462 at $10 - you get $2000. At expiration, the stock is $470. Your shares are taken away at 462 (not at 474) - you get 462*200 = $92,400. Your total is 92,400+2000 = 94,400
2. You have 200 shares of IVV, current price $462. You sell calls with a strike price of 474 at $3.50 - you get $700. At expiration, the stock is $470. You still have you $470, your sold calls expire worthless, and you can still sell the stock at $470 if you want for the total of 94,000+700 = 94,700
3. You have 200 shares of IVV, current price $462. You hold. At that same expiration date from (1) the price is 470. You sell. You get 470*200 = 94,000
Of course this doesn't take commissions into account.
What would make sense to me is if you inherited free money in the form of stocks you do not want, why not just sell them and move into stocks you do want? Why attempt to make money with options on stocks you do not want?
What if the capital gains tax rate increases in FY 2022?