hi all When initiating a CC position....ideally Do i Sell call options first or buy shares first? Thank you
Most platforms will allow you to place the combo as 1 order. Should be labeled as "Buywrite" or "Covered Call" under the options tab. If not, you'll need a certain approval level to sell naked options so if you don't have that level of approval, you'll buy the stock first. If the options have a wide bid/ask, you may end up long the stock & not get the option price you want so best if you do it as 1 order IMO.
I try to buy shares first. Then sell call if I am at profit with stop at break even. If I get stopped out, I can re-enter at lower price or just keep the naked call. But I do get myself in trouble with this approach once in awhile.
Sell a put first and wait for the shares to be assigned to you. After the shares have been assigned, then sell a call. A naked put is equivalent to selling a covered call.
trade the more illiquid leg first. that way you know what your limiting factor is on your cost basis.
Also keep in mind that your margin might be huge when you sell an uncovered call before buying the stock.
Ideally you do both at the same time as a combo order. Normally though you buy the shares first so you have the shares to deliver in case you get assigned later when the short call goes ITM and you won't have to scramble to short sell the shares to have yourself exposed or close your short call position at a potentially huge loss, hence the term "covered call" for the short call position. If you sell the call first and don't have the shares, you are still exposed because you can get assigned at any time with American options.
Yep, if you're not doing it on one ticket (buy write) than you want to own stock first. Covered calls work great on a stock that you may already be profitable on and you want to sell and take profits. Instead of selling stock outright in the market you can sell a call and get paid to get rid of your stock. You can also sell call as a hedge against a stock you may own that is going down.
Try to place the order simultaneously if your broker allows it. If not, I think it is better to buy the stock first. Otherwise, the required margin may be too high.