Covered Calls-Writing Covered Calls

C o n f u c i a n asked:


Here is the situation:
I had $8,000 in my Scottrade account.
I had an additional $8,000 in margin

I bought 2,000 shares at $8 (1,000 with my own money and 1,000 on margin) for a total of 2,000 shares at $8 for a total of $16,000.

Here are recent closings of my stock:
Friday: $7.92
Monday: Market Closed for President’s Day
Tueday: $6
Wednesday: $5.84
Thursday: $5.03
Friday: $4.92

During the week I noticed my first maintenance call for $1,840.99 and so I added $2,000 in new funds to cover it.
Then later another for $1,752.99 and I again added $2,000 to cover it. So I added $4,000 last week to cover the margin calls.

However, on Friday when it closed below $5 it asked for a maintenance call of $4,861?
(1) Is this excluding the $4,000 I already added or do I only need to add $861 since I already added 4K?

(2) What is the maximum I will have to add to my account to cover a worst case scenario so that I can keep my 2,000 shares without Scottrade automatically selling some of them to cover the call? I borrowed $8,000 so I am guessing the maximum I would have to add would be around $8,000 + interest, and I looked up the interest and know that it is either 7.75% or 7.5%.

(3) Assuming that the $4,861 is a new margin call, excluding the $4,000 I already added, for a grand total of $8,861…..Isn’t this too high since I only borrowed $8,000? I am unsure but have all but concluded that since my stock dropped under $5, I now have to cover 100% or the entire margin call, but still, why would it be $8,861?

Some additional information:
The lady at Scottrade told me 65% was what I needed to maintain. She also told me I wouldn’t get a margin call unless it dropped under $5 and I got a margin call 2 times when it was above $5 so she obviously was misinformed.

Finally, looking back, there wasn’t much I could have done to prevent this situation. I bought in at $8 on Friday. It opened around $7.25 on Tuesday and I was waiting/hoping for a bounce: it ended up closing at $6 on Tuesday at which point I was set on being in it for the long haul (who would have sold for a 25% – one day loss and not just wait it out?)

Thanks a lot for answering my questions, I appreciate it.

Eileen

Jay B asked:


I am doing this for a project in school. I sold calls back at the beginning of the school year for corn. I sold 350 Dec calls for 6.75 cents. They currently are trading well over 20 cents. December corn is currently above my 350 strike price.

If Dec corn prices continue to rise, how would I take advantage of this the best I could without buying back my 350 Dec calls for a huge loss? Should I look into 380-400 December puts?

Casey Reiland

Vonzu Yoshii asked:


I have some basic knowledge of options trading and options strategies. I would like to create screeners for various strategies (covered call, straddle, etc, etc.) but am not sure what filters/variables to select and what parameters to choose. Wondering whether there are books/articles providing discussion of this topic. Thank you.

Robin Luxenberg

CricketsBGone asked:


Scenario: I buy 100 shares of XYZ at $45/share and sell a call for say $50/share that expires in a month. In the meantime, the price drops to $40 and I get uncomfortable as my account balance is dropping.

Question: Can I sell XYZ for a loss assuming that it won’t go above $50 before the expiration date, or do I have to hold my 100 shares in case it does go above $50 and someone wants to buy the 100 shares for $50? Or do I automatically lose those 100 shares the minute I sell the call?

Thanks.
Steve.

Ramonita Tataris

hass asked:


I know that it does not allow you to write a put and sell it, even if it is covered in cash. But level 2 says covered calls + long purchases are allowed.

So that means that I can purchase puts. Would I then be allowed to sell the put that I purchased if I didn’t want to own it anymore or not.

Daron Lars

Wai asked:


To be specific, I sell to open BAC 14.00 MAR 11 C

Obviously this covered call has expired, I can see that I am not assigned to sell the stock because I still own the stocks. (And how do I know if I am assigned to sell the stock? Do I receive a message or will it be done automatically?) . So this covered call is still showing on my Scottrade account. How long will it take for the expired covered call to disappear? Thank you

Ladonna Balder

Addy asked:


Covered Call Options Expiring Assigning?
(Please experienced response required, thanks in advance.)
Hi
I have sold covered call option (deep in the money, now). Should I let the covered call options expired and get the assignment? In this case I will get the strike price plus premium. OR should I close the option position? I do not know which one is a better strategy.
Appreciated.
All three answers are the best. Thanks every body.
Thanks everybody. Well answered. Appreciated

Ben Rentas

asked:


I was told I can do all things, from covered calls,to options trading at no cost. I have portfolio of 500k dollars. This sound like good deal?

Caroline

Thats Right pt II asked:


i am wondering if the practice is to weather the storm by doing new contracts month to month or not to right at all until the price is close to where the pullback started.

thanks.

Elroy Strople

Reece Mak asked:


I already own the shares, and I want to sell a covered call contract. Do I just sell a call and that’s it. I am new to option. when the buyer exercises it, I just deliver my shares to buyer?
correction: write a covered call contract.

Waldo Schellenberge