Covered Call Newbie Question

OK. This may sound like a stupid question brought on by an idiot. But, here it goes.

If I write a covered call and I get assigned, do I keep the premium?

 

yes

 

No, the premium goes into a special fund that Goldman Sachs and the like use to pay out bonuses. (Sorry, I couldn't resist. )

On a more serious note, yes, you keep the premium.

 

Thanks for answering so promptly.

 

So, let me get this straight.

I now have a large portfolio of SPY and I now have a open sell order for 110. If I am satisfied with that price , I could make some extra dough by selling the 110 calls. If I get assigned, I make my target AND the premium. If the goal is 110, I only gain by selling the calls. Is that right?

Thanks in advance

 

1. close the sell order before
2. sell the 110 calls

If you don't close the sell order and it executes you will have a nekkid short call, although I dont think most brokers would allow you to do that.

 

Thank the Lord you said that. I did not close the sell order. It is now closed. THANK YOU!

 

Not exactly. SPY may get to 110 and then fall. The call won't be exercised and whether you are better off or not depends on how much SPY pulls away from 110 compared to the premium collected.

Joe.

 

Good point. But if it stays at 110 or over at expiration, I close the position AND I get the premium?

 

If you close the entire position before expiration, then you don't get to keep the premium. You have to buy back the call which will cost money. If hold the position through expiration and if spy is at 110.01 or above, your stock will get called away at 110 (thats the price you sell it at) and you get to keep premium. In this case do not worry about doing anything yourself, you do not have to close the position yourself, it happens automatically. If spy is below 110 through expiration you keep premium and your stock is not called away.