Hi, I've tried looking Online but found nothing related to how to operate covered call, step by step. My question is: does my options account have to be with the same broker as my stock account that I want to create covered call on? E.g. Say I have 100 shares of Apple Inc. stock at Broker A. Do I have to create an option account with Broker A in order to put my 100 shares of Apple Inc. stock as collateral for the covered call? Or can I go with Broker B for my options account? Note: Broker A and B are not related to each other at all. Thank you.
The "coverage" of a covered call occurs within a single account. You sell a call, and the margin requirements are covered by the stock you already own. If you do not own the stock yet, then you are pursuing a "Buy-Write" where your contract line includes a purchase of stock net of a sold call. (And you can certainly write a Buy-Write even if you already own the stock -- you'll just be buying extra lots to cover each call that you care to write. If you buy back the call, or if the call expires worthless, your net position now includes the stock you bought for the Buy-Write.) Distinguishing the Covered Call from the Buy-Write on your trading platform will be important at some point.....
Technically, if you are assigned then it's in the same account. But you could then sell your shares in your other account and transfer money between accounts. Kind of a hassle. You usually see this question asked when people have stock schemes with their company
What you describe is not a covered call -- it is naked, and has ramifications with regard to (newb's) trading permissions, as well as significant margin impact.
I am saying own shares in one account because you have them for the long term, company purchase scheme etc. Then hold shares and sell a call in another account. Definitely not a true covered call since you're only covering half your actual stock but is a way to earn some income
Thanks for the replies guys. Now I get it. Can I please clarify: 1. What does it mean by 'assigned' here? 2. Can I understand it correctly. If I do it this way, I would have to put cash margins on my options account if the price is gradually going against my favour. So simply treating it as a naked call? And if the call I sold is exercised by the buyer, do I have the options to either (1) cash in my 100 shares of stock by selling the shares so to meet the payment to the options buyer, or (2) just pay cash outright to the options buyer and keep my shares (i.e. not selling/cashing in the shares)? Am I on the right track? Thanks.
My two cents...If you are trading at IB or at Robinhood, you may want to open an account at Schwab or Fidelity. They both offer classes online (and without the Coronavirus) at their offices. Since you are wanting to do covered calls, you have the money to buy the stocks. Beware, both Schwab and Fidelity charge an exit fee. Since you may not be trading much, you may want to stay there. There is much more "hand holding" free information, that may help you. I am not trying to put you down. Just saying you get what you pay for. I have not seen IB or Robinhood's classes. But again, Schwab, Fidelity, T D Ameritrade are designed more for the person who needs a lot of calls into the call center, wealth management, other products.