Anatomy Of A Covered Call Trade

Anatomy Of A Covered Call Trade Hello Smart Option Sellers! In today's earlier alert, we implemented our very first covered call trade. For those of you who still had the GPS September 20, 2019 $18 put-sell position in your account last Friday, then you received the shares in which to execute the covered calls against. I will have the official results of the covered call price in tomorrow's alert, after we let everyone receive their fill prices during the day today. How Does It Work? Since GPS stock finished below $18 per share on Friday, we now own the shares at a price of $18 per. This also means we have concluded the roll trades which consisted of a position that started in March 2019. I will go over those results in the next section. By selling the December 20, 2019 $17 call option, we will be obligated to sell the GPS shares at $17 per, as long as GPS stock finishes above $17 at the December expiration. You might be thinking - why would I possibly want to sell the shares at $17 when I just bought them at $18? Seems like a guaranteed loser? On the surface, yes, it might seem that way. But, by selling the $17 call option, we are going to collect roughly $1.50 per contract (not official yet), which can be applied to the loss that might be taken on the stock transaction. Yes, we will lose $1 per share by selling the stock at $17 after buying it at $18. But the $1.50 per contract we'll collect from selling the $17 call option will outweigh that loss by $.50, giving us a potential $.50 per share overall gain. Now, the final profit/loss on the covered call transaction won't be known until we unwind the trade in December. We actually want the stock to finish above $17 so our shares will be taken away from us. This will finally conclude the trade and we will be finished with our GPS position. If GPS stock finishes anywhere below $17 in December, we will re-assess at that time (or sooner) on the next step. We could continue to sell covered calls until we're finally taken out of the trade in some form. Final Profit/Loss Results On The Roll Position Let's discuss what the final numbers were on all the option trades