Thinking about Covered Calls

Hello. I currently own some shares of stock that I would like to write covered calls on. I just would like to find out what the probabilities are of the call being exercised and me having to deliver the stock? Good? Bad? The stock trades 2-4 million shares a day. Is there anything I can look at to give me some idea of being exercised such as open interest or volume? Thanks for your help.

 

A simple but naive approach is to look at the option delta.

 

One way to avoid exercise ... don't write calls ;-)

Before expiration, if there is enough time value left, there is no reason to worry. The buyer will not give up this time value.

At expiration, ITM call will be automatically exercised.

 

Wow I didnt know that.

What kind of calls do you buy when writing? OTM?

 

if you are writing you are selling.

 

What about European Style Writing?

 

It would be hard to find European-style equity options.

Unless you meant some other style.

 

Given the type of questions the original poster asked regarding covered calls, I would recommend you do not touch any options until you have invested in a book or two on options and how they work and how a covered call strategy works.

Some books I recommend are by Mark Wolfinger and McMillian's Options as a Strategic Investment which goes into covered calls after covering the basics of options.

I tihnk pouring over two good books on options and covered calls will give you a better framework to understand how to add covered calls to your long stock holdings.

Phil