Need help with covered call trade on IB

G

GoogTgt

Hi,
I am new to writing covered calls. Can some one confirm what I did is a covered call? I bought 100 GOOG at 724 each and then sold 1 Jun 730 Call at 900 on IB using their web trader (not TWS). Is this a covered call? IB shows the quantity for the sold call as -1.

If GOOG trades at 740 on 6/17 and my call gets assigned, will IB automatically sell the 100 GOOG I bought earlier at 730?

Thanks.
 
Correct...you will make $6(730-724) plus $9 for the premium. Remember, you sold the RIGHT to sell your shares at $730 by 6/17. You lose if strike price(730)+premium($9) is lower than what the shares trade for...in your example, $740. If the stock is less than $730, that call expires worthless, and you look like a genius. For me writing calls on FCX has made me a small fortune...of course, it works till it doesn't. Lol
 
Thanks. How would I lose if the stock is trading at $740 or above on expiration? That is a $15 profit, though capped at 15, for $724 investment in 3 weeks, a 35% annualized return. What am I missing here?
 
Last edited by a moderator:
As it stands now:

  • Bought 100 GOOGL at $724.00.
  • Sell Jun 730.00 call at $9.00 (Credit $900.00).
  • Cost basis per share $715.00.
  • Current GOOGL price $738.00.
  • Your selling price due to the ITM calls $730.00.
  • Unrealized P/L +$1,500 (maximum profit).
  • If you didn't sell the CC your unrealized P/L would be +$1,400 with potential for more.



:)
 
OptionGuru said:
As it stands now:
  • Bought 100 GOOGL at $724.00.
  • Sell Jun 730.00 call at $9.00 (Credit $900.00).
  • Cost basis per share $715.00.
  • Current GOOGL price $738.00.
  • Your selling price due to the ITM calls $730.00.
  • Unrealized P/L +$1,500 (maximum profit).
  • If you didn't sell the CC your unrealized P/L would be +$1,400 with potential for more.

:)
More...
Hi, what does the difference of 100 mean? I mean, what's the reason for that difference?
 
marsman said:
Hi, what does the difference of 100 mean? I mean, what's the reason for that difference?
More...

If you're referring to the $1500 vs $1400 its cause the stock was trading at $738 minus the $724 cost=$14(100)=$1400. As noted previously, sell the $730 for $9 plus the $6 difference you get $15(100)=$1500. If the stock goes from $739 to $5000 by June expiration you're out anything higher than that point. Anything lower between $730-739 you can buy the option back and roll it out as you have profit. Below $730, you lowered your average by $9, and keep the shares. My apologies as I'm answering via a tablet instead of desktop.
 
Welcome.

Others gave you the right answer. Here I just want to suggest that if you are really really bullish on GOOGL, in addition to owning the stock, why not bought additional options instead of write? At the time, if you were to buy the call, costed you about $900, as of today your $730 call is ITM worth about $2280 and you still have lots of upside (of course lots of down side too but you can choose to take profit now and lock in your gain).

When I started out in 2013, I did what you are doing but found out my total return was actually not as good as "buy and hold", so I essentially abandoned covered calls. You see the counter parties on the other side of my trades were not as dumb as I thought by just handing out free money to me. :D

Good luck and have fun.
 
Hi, I'm new to IB and am looking at this as well. Having exactly same scenario as GoogTgt. Can anyone help to confirmed if the below is a covered call (write) for DIS please? Also, I'm trading on margin for the underlying stock.

Scenario: first bought the underlying stock, then go onto option trader and sell the call option. Am I doing this right?

upload_2019-8-30_18-51-56.png


upload_2019-8-30_19-3-43.png
 
tritritri said:
Hi, I'm new to IB and am looking at this as well. Having exactly same scenario as GoogTgt. Can anyone help to confirmed if the below is a covered call (write) for DIS please? Also, I'm trading on margin for the underlying stock.

Scenario: first bought the underlying stock, then go onto option trader and sell the call option. Am I doing this right?

View attachment 208057

View attachment 208058
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the order doesn't matter. You are long the stock and short a call - which is a buy write. If the stock is above 138 at expiry, you'll be assigned and you will sell your long stock at 138. The CF is another matter. You can't convert a CFD to stock and that IMO would not be covered. You using a real account or paper?
 
currently trying out in paper. Do not want to risk anything before I know it inside out.

Yes it is a buy write, just not sure if I'm executing it correctly. I checked with IB and they mentioned that if you have not enough cash then it will buy with margin. (though not sure if CFD is covered). Anyone tried it?
 
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