Hi guys, I am just starting out with options and sold a few covered calls. I was selling calls that don't really have high volume so I saw that sometimes, the bid/ask spread is a good gap ($1 or more). Why can't I simply buy 10 calls and sell 10 calls for the same strike and same expiration and collect the premium as my profit? Then, whatever happens, either finish worthless or ITM in which I just hand the stock from exercising over to the buyer of my calls. What am I missing here? I know that the orders might not get filled (either the buy or sell) because of low volume or whatever, but let's say it happens, why is this not a good strategy? Thanks for your help!
Recap: Long stock Long 10 calls short 10 calls Bullish strategy Why is this not a good strategy? Stock could go down.
If it finishes itm you need to buy the stock before you hand it over. Suppose you sold the calls and the stock went to 100000000
Thanks for the replies. to clarify from the first reply, I was selling covered calls but the strategy I am asking about is selling naked calls. the second reply is exactly the unlimited risk potential of selling naked calls. and I agree. However, my point is that I also bought 10 calls at the same strike and expiration, wouldn't I just exercise these 10 calls that I bought, get the 1000 shares of XYZ and then simply hand it over to the put owner? This is my question.
It's best to post a trade idea with real quotes. Explanations of a trade can be misinterpreted very easily and the thread ends up going nowhere. AAPL at $111.16 Buy 1 contract Sept 18, 2015 112.00 call at $3.30 Sell 1 contract Sept 18, 2015 112.00 call at $3.20 By posting a marketable trade example everybody is on the same page
Then it would be something like this AAPL at $111.16 Buy 1 contract Sept 18, 2015 112.00 call at $2.50 Sell 1 contract Sept 18, 2015 112.00 call at $3.20 (not covered)
What I posted is not real, its my strategy's hypothetical situation. I can't find actual real quotes that fit what I am describing right now, but I did see them before.
So whats your position? Long stock Magically both long and short the same calls When you buy and sell the same call for the same qty you're flat
You think you can get someone to pay you 3.2 for the call and you can get someone else (or maybe the same person) to sell you a call for 2.5?