Question about what I should do with my AAPL covered call

W

whysoserious

I sold a covered call for appl at close today 110 strike April for a 9.75 premium. I was predicting a drop but I was wrong(based on after hours trading). My plan was to buy it back after the drop in price and make a nice realized gain by the morning. I am averaged in at 103 with my aapl shares.

My question is would you buy it back for a loss? It has a delta of .43 and its up about 13 in after hour trading so I'd take a nice hit if I bought it back. The reason I want to buy it back is I don't want to miss out on big gains by apple. I could sell a Nov out of the money call to offset my losses.

Thanks in advance
 
Quote from whysoserious:

I sold a covered call for appl at close today 110 strike April for a 9.75 premium. I was predicting a drop but I was wrong(based on after hours trading). My plan was to buy it back after the drop in price and make a nice realized gain by the morning. I am averaged in at 103 with my aapl shares.

My question is would you buy it back for a loss? It has a delta of .43 and its up about 13 in after hour trading so I'd take a nice hit if I bought it back. The reason I want to buy it back is I don't want to miss out on big gains by apple. I could sell a Nov out of the money call to offset my losses.

Thanks in advance
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let it ride.
 
Quote from whysoserious:

I sold a covered call for appl at close today 110 strike April for a 9.75 premium. I was predicting a drop but I was wrong(based on after hours trading). My plan was to buy it back after the drop in price and make a nice realized gain by the morning. I am averaged in at 103 with my aapl shares.

My question is would you buy it back for a loss? It has a delta of .43 and its up about 13 in after hour trading so I'd take a nice hit if I bought it back. The reason I want to buy it back is I don't want to miss out on big gains by apple. I could sell a Nov out of the money call to offset my losses.

Thanks in advance
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1) Writing covered calls is a strategy for investors who are willing to sell their shares. Even though you were wrong on your prediction, you are a winner with the covered call position.

It's unreasonable to expect to win on every trade. If bullish on APPL, why not hold the covered call position?

If you expect a super run in the stock, perhaps you can buy a different, cheaper call tomorrow - AFTER the expected volatility crush.

But you are already long and buying a call makes you longer.


2) Your idea of selling Nov calls will look unattractive tomorrow when the options will carry much less premium than they did today.

Mark
http://blog.mdwoptions.com/options_for_rookies/
 
Correct me if I am wrong but wouldn't the November calls go up in value too tomorrow. aapl closed low 90's and its up to around 103 in after hours. Who knows it could be down by the morning.

Another question. Would the buyer of the call exercise it when it hits 110 or would they wait until the option expiration date to exercise it?
 
Quote from whysoserious:

Correct me if I am wrong but wouldn't the November calls go up in value too tomorrow. aapl closed low 90's and its up to around 103 in after hours. Who knows it could be down by the morning.

Another question. Would the buyer of the call exercise it when it hits 110 or would they wait until the option expiration date to exercise it?
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Please take this advice to heart:

You really should understand how options work better than you do now - before putting your money at risk.

1) Yes, the ITM calls will go higher, but OTM calls will move less than you anticipate. After earnings are announced, a lot of the juice comes out of option prices.

2) NO. The buyer would Not exercise when stock hits 110.

Buyer paid you $975 for the RIGHT to buy stock at 110. If he waits until the stock hits 110 to exercise, what has he gained? Nothing. In fact, he loses the entire $975 because he can go out to the market and pay 110 for stock.

The reason for buying the call was to control 100 shares of stock for $975, rather than the roughly $9,500 it would have cost to buy shares.

To exercise costs $11,000. Why pay that when he already owns a call option? No one does that prior to expiration. Please tell me you understand this point. It's crucial that you do.

Thus, he holds that option - or sells it. He does not exercise. Ever (before expiration).

Mark
http://blog.mdwoptions.com/options_for_rookies/
 
Quote from Attacking Mid:

Not true. While generally illogical to exercise an American option prior to expiration, the holder is allowed. It has happened to me. Needless to say, I was surprised when it happened.

AM.
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Of course you are correct.

I was referring to a trader who knows what he is doing. That trader would exercise only when he wants to sell the option and it's trading below parity. Then he exercises and sells long stock.

Mark
 
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