Repairing covered call

Discussion in 'Options' started by dream_maker, Apr 7, 2008.

  1. hi,
    one question on cc repair here. assuming i bought 100 shares of Citigroup at $25 and wrote some calls on it. the stock came down i continued to write calls on it.

    the current call i wrote was strike price $18 when the stock was trading at say $19. however, the stock advances quickly and is now at $24.

    does anyone have any idea on how i should go about repairing this stock?

    thanx in advance.

    dream maker
     
  2.  
  3. First off, if you only bought 100 shares of C then you would only be able to sell 1 call once that's 'covered'. Any subsequent sells would be outright option call shorting... which has different margin requirements.

    You sold calls without a hedge = loss unless you made enough on the premiums. What you do now depends on your risk parameters and expected stock behavior.
     
  4. I guess I need some clarification. When you say you wrote multiple calls on Citi are you meaning that you have had Citi for a while and wrote like a Jan call, then a Feb call, then a Mar, and now you only have 1 open April 17.50 Call?

    NOTE: I am assuming you meant that you wrote the 17.50 call since there are no 18 calls.

    If this is the case then the simplest choices are either buy back the call or let it get exercised and lose the stock.
     
  5. MTE

    MTE

    The position goes against you then there's no magic wand that will "repair" it.
     
  6. Don't be an atheist nor agnostic anymore. Commit to religion as a first step towards repair and rebirth.
     
  7. oraclewizard77

    oraclewizard77 Moderator

    Your broker will repair it for you automatically. Its called a margin call.


     
  8. There will be no margin call, the OP sold a CC on 100 shares. Worst case scenario is 100 shares called away at $18 for a credit of $1800.00 plus premium collected on the calls.

    I would let this position ride to expiry and let the shares go. Lesson learned on this one is that CC's suck, you are stuck with the downside - as in this case - and your profit potential is limited.
     
  9. I think he meant to say: "Your broker will repair it for you automatically. Its called an exercise."
     
  10. The worst case scenario is the stock goes to zero. :cool:
     
    #10     Apr 8, 2008