In the money covered call - RIMM

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polpolik

Got a question to you guys and i think i know what the answer is already but might as well ask:

bought RIMM at 104.4 yesterday and shorted the 115 Jan call options at 4.24. Right now, as you can see, RIMM is at 124.55 so my short calls are around $14 as we speak.

what's the best way to take profit here assuming i have no clue where RIMM will go from here. Just let the call option expire so I don't pay the "time premium"?
 
You're synthetically-short the 115P, which went OTB at $13.80. The put is $3.80 mid in the pre-market, so I'd recommend you cover with your $10 in winnings. The question is, do you want to be short the Jan put at $3.80 with the shares at $123.60? You can sell the 130C to effect a synthetic 115/130 outside strangle. Selling any call results in a synthetic combo.
 
You're potentially jeopardizing the stock position by being wrongly concerned about the option's time value. Consider selling the stock on the open, hope for a price pullback in the stock and volatility decay in the option, then cover the option at a lower level.
 
Thanks risk, nazz - I'll cover then when I can. I was thinking that too - risking too much cause i dont want to pay a few bucks for time premium.
 
Quote from IV_Trader:

at 124 , JAN call will have a delta of .7 at the open. Sell 30 shares now to "lock" the profit / become DN
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Not a bad idea to sell a weak-straddle at 115, neutral to 124. Assume 4.50 for the 130C nets 18.30 on a 115/130 strangle. I'd rather hold the 18.30 [initial] credit or cover.
 
Wow, the pre-market on the 115P just went to 5.60 mid on the put. I would recommend selling the 130C at the open; leaving you net-short the 115/130 strangle.
 
Quote from atticus:

Wow, the pre-market on the 115P just went to 5.60 mid on the put. I would recommend selling the 130C at the open; leaving you net-short the 115/130 strangle.
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I'm in over my head with this one :) I bought back the call and sold the stock. then I'll probably need to read up on options more in the future.
 
Quote from polpolik:

I'm in over my head with this one :) I bought back the call and sold the stock. then I'll probably need to read up on options more in the future.
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Talking to atticus about options is akin to discussiong relativity with Einstein..
 
Quote from Matt24SPFL:

Talking to atticus about options is akin to discussiong relativity with Einstein..
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Well the man is brilliant, atticus is like mozart in options, usually i was able to grasp what he is saying after rereading it a couple times and type it out on notepad, but this one just cant understand no matter how hard i try.

Quote from atticus:

You're synthetically-short the 115P, which went OTB at $13.80. The put is $3.80 mid in the pre-market, so I'd recommend you cover with your $10 in winnings. The question is, do you want to be short the Jan put at $3.80 with the shares at $123.60? You can sell the 130C to effect a synthetic 115/130 outside strangle. Selling any call results in a synthetic combo.
More...
:confused:

The OP sold covered call at 115 strike at $4.24 with a cost basis of $104.4. Now the call is at $14 and stock at $124.55. So if he:
1) cover the short, sell the stock NOW, will have a profit of ~$10 per share.

2) wait until expiration, will save ~$4 on time premium, but risk the underlying drops lower while waiting. If underlying stock drops to $110 at expiration, he will make the same $10 as 1).

3) sell the stock, keep the option. Then wouldnt he have naked short call position then? I dont understand how this is a good idea considering RIMM is pretty hot right now
 
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