Options on ETF

Discussion in 'ETFs' started by osho67, Jan 9, 2009.

  1. Suppose I buy 100 shares of QQQQ - price now is - 30.32. I immediately sell one call option - at strike 30 and receive premium 0.82 (Which I assume is $82) Jan exp.

    When will this option get exercised? As it is american style will I get exercised immediately?

    When I buy 100 shres I will pay margin . When I sell option I hope IB will realise that I have 100 shares and will not charge another margin

    Comments much appreciated. Thanks
  2. In general, the more ITM your short option is, the more likely you are to be assigned. The call you sold is only ITM a small amount, so you *probably* won't be assigned until late next week if it doesn't go much more ITM.

    If the short call is still ITM at expiration you will be automatically assigned short QQQQ. Since you're already long QQQQ, the long and short stock positions would cancel out. i.e. your long QQQQ would be closed.

    The broker will know the short call was sold against the long stock position.
  3. Think about this: You have a choice today.

    You can buy 100 shares of QQQQ by paying $3,032.

    As an alternative, you can buy the 30 call @ 0.82 and exercise that call. That gives you an effective purchase price of $3,082.

    Which would you choose?

    Would anyone else choose the alternative?

    That's why you will NEVER be assigned an exercise notice right away. In fact, the chances of being assigned prior to expiration are essentially zero. And that's true, even if QQQQ rises to 100.

    IB knows how to calculate margin. Have no fears.

  4. Thanks for replies.

    I was wishfully thinking of having some income several times a month.

    On margin a/c I will not have to pay full price of 100 shares-I assume.
  5. cfelicio


    why you just don't sell a naked put then?
  6. Because he mistakenly hoped to be assigned right away with the covered call.

    Then he would do it again.

  7. Ah, everyone's looking for no risk in the market.

    Best you can hope for is to enter only lower risk positions and then reduce risk once you're in.

    That means work.
  8. I trade QQQQ quite a lot when it was around $50, and one thing for sure, I never get exercise for my short options (even sometime it was nearly $5 in the money) even I hold it until the last day of the expiration month :D
  9. Your short call should almost never be assigned until expiry. There isn't a div from now til Jan. No huge short stock rate either. You should only be assigned at expiry.
  10. ha ha.. the only time we get assigned is before Dividend date if any..

    I think the Original poster wanted a quick assignment.. that wud be ideal.. but the buyer of the damn Call has paid till expiration. ha ha. why should become a bag holder. in the event if the stock falls..

    covered calls is like playing the childhood "passing the parcel" game. u get premiums to hold the parcel. but when the music stops.. u may become bag holder
    #10     Jan 10, 2009