Understanding my risk

wburt1948

wburt1948

If buying a vertical call where I buy a call at strike price of $80 (ITM) and sell a call (uncovered) at $95 I'm asking that should the buyer of my sold call at $95 exercise the option if the stock were to hit, say, $110, should I assume my best action would be to exercise my bought option at strike price of $80 and use that to provide the 100 shares. Sorry for the run on sentence. Periods can be our friend.

This could be a concern as I don't have the $8000 required to buy at $80 readily available. Could take 4-5 days to gather that much cash......

Avoid the vertical option purchases or what?

Many thanks.
 
Assuming no dividend,why would anyone exercise their call early??

Worse case scenario,you get assigned and are in a synthetic put (short stock long call)..

Not sure what the margin is..

You can always exercise your call to get flat,but that makes no trading sense
 
Well, here's my thinking. If I could exercise a call at a strike price of $80 and sell it the same day at $95 why wouldn't I? Roughly $1500 profit in a matter of a day or two. I was asking about the uncovered call I sold at $80 and the buyer (not me) exercises their option to buy at $80 while the stock's current price is $95.
I guess my question is centered around the risk of selling an uncovered call, albeit with a bought call at lower price.
 
I answered your question
.Tell me why you would exercise a call early assuming no dividend

wburt1948 said:
Well, here's my thinking. If I could exercise a call at a strike price of $80 and sell it the same day at $95 why wouldn't I? Roughly $1500 profit in a matter of a day or two. I was asking about the uncovered call I sold at $80 and the buyer (not me) exercises their option to buy at $80 while the stock's current price is $95.
I guess my question is centered around the risk of selling an uncovered call, albeit with a bought call at lower price.
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wburt1948 said:
Well, here's my thinking. If I could exercise a call at a strike price of $80 and sell it the same day at $95 why wouldn't I? Roughly $1500 profit in a matter of a day or two. I was asking about the uncovered call I sold at $80 and the buyer (not me) exercises their option to buy at $80 while the stock's current price is $95.
I guess my question is centered around the risk of selling an uncovered call, albeit with a bought call at lower price.
More...

You are covered because you bought the $80 call and sold a $95 call. Your call option will get in the money first if the stock rises. There is no reason to worry because you can close your position way before the expiration date. If you are showing a substantial profit, you can sell your vertical spread to close out your position and liability on the $95 call. Once, the trade is closed, you do not have to worry about being called out. Naked call is when you sell a call outright without hedging by buying a lower strike call to protect yourself. In that case, if the stock runs up, you can lose a great deal of monies. You will end up chasing the stock price to close your position by buying the stock back at the much higher price.
 
Exercises/assignments are rare, unless indeed the option is deep ITM and the strike + option's price is about equal to the stock price (and still rare).
When an assignment does happen, it's overnight, so you won't have time to exercise your other option unless you'd wait through the day and exercise it the next night.
But you'd still have your other call that would be hedging against the short shares you'd end up with, so your overall balance should be unchanged.
Even if you are simply short a naked call and get assigned shares overnight, next morning most brokers will give you a few hours to close your position (buy back the shares), even if you ended with negative balance. In some cases you'll lose a little on those shares, in other case you'll make an extra profit, so such assignments aren't too bad.
 
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smallfil said:
You are covered because you bought the $80 call and sold a $95 call. Your call option will get in the money first if the stock rises. There is no reason to worry because you can close your position way before the expiration date. If you are showing a substantial profit, you can sell your vertical spread to close out your position and liability on the $95 call. Once, the trade is closed, you do not have to worry about being called out. Naked call is when you sell a call outright without hedging by buying a lower strike call to protect yourself. In that case, if the stock runs up, you can lose a great deal of monies. You will end up chasing the stock price to close your position by buying the stock back at the much higher price.
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This is a clear and consise explanation. Thank you for helping me.
 
I believe that the risks of the trader should be assessed before the beginning of the work. Otherwise, he could banically lose all funds, because he underestimated any risk.
 
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