I recently got into learning about options trading and am using a virtual trade simulator to practice some strategies. There is one thing i dont understand though. When I sell a covered call I see a debit (more than the commission fee) on my account (by debit i mean decrease). It seems like i'm paying the premium- but if im selling shouldn't I be recieving? Or is it that the premium doesnt get credited till the option expires?
hi, just so you know, you are not receiving anything when you place this cc trade. you just 'hope to' by expiration. yes, you are selling a call against your stock, but that call will still have a value until expiration. so if the stock goes up, the value of the call near the money will go up too. if the stock goes down, you keep the premium from the sale of the call but you will lose with the stock decline and you probably will have difficulty getting back to even. this is not a bad time for this strategy with the current volatility levels but still it is probably the worst stategy out there and yet it is sold as the holy grail. back test this strategy over the past month and see what happens for yourself to see if you have the stomach for this, my guess is that you will consider something else.
All I've been practicing with selling covered calls. The issue is that on the virtual trade account every time i make a sale it seems to cost more than just the commission. For example, if i sold a JPM sept11 30 Call @ 1.00 and it costs $15 for commission it would show up on my account as if it cost me $115 to make the sale. This made no sense since i was selling and if i bought the same call it would cost much the same same. I was under the impression that when you sold a call that there was a debit to my account, not a credit, but everytime i sell a call it shows up as a credit in my account. Why would i have to pay to sell the call (besides the commission and fees)?