I recently became interested in selling some covered calls and in March sold calls on a stock that I've owned for a couple years. It worked fine as I pocketed the premium and I was interested in keeping the stock in my portfolio. By going through the process, I feel pretty comfortable with how to sell/write calls for stocks that I own (covered). However, can some one help me with the idea of buying back the call - or, I should say, the strategy of buying back a call - in this case all covered. When I sell the call I Sell To Open and then that option shows up in my portfolio. Can I Buy to Close that option. If so, how do I do this and what would trigger my wanting to do that. Hope I'm clear on my question. I've lurked for a week or so around here but this is my first post. Thanks in advance,
If the CC is in the money right before the expiration, and you do not want to part with the stock, you can buy the call back. You may do so because you believe the stock will continue to rise, or to avoid a taxable event, or both.
if you decide you want to close out the position you can simply buy back the same strike call that you sold for whatever the ask happens to be at the time. there could be many triggers. several examples would be: if the stock is above the strike price and you dont want to lose the stock or there is little premium left or you want to roll into another strike.
Any more I almost never buy back the call..the r/r just isn't there. If you are writing only one our two months out...just let it expire then sell a put to buy it back. Sometimes It will get away from you ie. the stocks gaps up...and you are tempted to roll or close...DON't...it almost never pays off.
In my opinion only an expert should consider buying back a covered call. A beginner who starts doing this is in essence a "closet naked writer" and will take a small money making strategy and turn it into a loser. Don't sell the call if you don't want to part with the stock. Again, if you really know what you're doing and have a strategy then feel free.. You might look at selling a call spread.
dont agree at all. one of they only sensible reasons to sell covered calls is to make income off of your stock holdings. there could be many reasons you might not want to sell the stock. in that case buying back the call is necessary and prudent.
It's interesting to see the difference of opinion since I've never worked this strategy. Given that, it's pretty easy for me to maintain "beginners mind". Thanks to every one for their help.
vhen; you've been here awhile and certainly don't qualify as a beginner, toward whom my remarks were made. In clarification, I've personally seen two beginners sell covered calls on their beloved stocks, have the stock run well through their strike, buy the calls back at a big loss to keep their stock, and then swear off covered writing forever as a losing strategy (and blame me for suggesting such a stupid idea as cc's - I've since learned to keep my mouth shut). Now these folks were trading in their IRA's so there were no tax issues to cloud things. A lot of folks don't have the strategy and discipline in place to make cc's work. They tend to sell stocks on poor candidates (the strongest ones in their portfolio). Mental stops to buy back in the call at a minimum loss work about as well with these folks as mental stops to sell losing stock positions. That's why I tell those starting out to only sell calls on stock they'd be willing to give up. Beginners don't know the risks and end up losing money and blaming the strategy. Then again we could say that about all trading.
i find that i play a game of ping pong with selling naked puts and then selling the covered call once assigned on the stock... i also will sell the covered call and the put of the same strike...the logic here is i don't mind owning the stock or it it sits i collect the premium and do it again next cycle... not really for beginners but seems to work fairly well with stocks with a minimal range