New to writing options - selling CVX options

Discussion in 'Options' started by toben, May 22, 2007.

  1. toben


    Hello, although I have bought options before I am about to attempt my first writing and wanted some risk feedback to make sure I am doing what I think I am doing.

    I own 400 CVX- its at 82.63 today. I want to write 4 calls for June 85 strike price.

    So I sell 4x CVXFQ at 0.90
    Estimated commission: $12.99
    Estimated total proceeds: $327.01

    This is what I think will happen:
    If the stock price stays below $85 by the end of June, I pocket the $327 and nothing happens.

    If the stock price goes above $85 I have to sell my 400 shares of CVX at $85.

    I am assuming my worst case scenario is that the stock goes through the roof and I sell at $85. Can anything worse happen? Since I own the stock I can't lose anything can I?

    If the stock price does exceed $85 what are the odds that my contracts will get exercised? Will my broker (etrade) sell my shares automatically?

  2. RobtF


    You will have only one or two cents (I think) leeway above 85 then the shares wil be sold automatically. You have the risks right except maybe one - If CVX starts dropping you'll have to buy back the calls before you can cut your loss on the falling stock.
  3. The worst case scenario is if the stick goes to zero, not infinity.