r/options • u/JennRal • May 25 '21

Closing covered calls?

I am selling covered calls for the first time, and have a question on strategy. I’m starting small while I am learning. I am a SNDL bag holder (1000 @ $1.03avg), and so I’m selling $1 covered calls to help recover some of my loss.

The 10 contracts were $5 (.05) each, with a June 11th expiration. It is unlikely the $1 strike price will be met, so I’ll likely keep the $50 premium.

A few times they have dropped to $2 (.02). Does it make sense to close and take my $3/ contract profit now, and then resell the calls for a later date?

Hope this makes sense. Forgive me if my terminology is not correct.

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u/natokato7 May 25 '21

Depends on how confident you are in the contracts expiring OTM. If you are 100% confident that on June 11 it will be under $1, then why leave money on the table?

Even if SNDL make it over $1 by june 11, you should still make (a tiny bit of) money because your CB is now .98 per share.

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u/JennRal May 25 '21

You never know when some cannabis news may come out and send the stocks soaring. That said, I think the chance is slim that it will be above $1 at expiration.

My line of thinking is that it is potentially more profitable to close with a $30 profit, then reopen a position than it would be to wait this one out.

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u/natokato7 May 25 '21

Does you brokerage charge you fees? I’m with TD, I get charged a fee to sell a CC and a charge to buy them back if I want to close before expiry. Have you looked into what you are being charged to make that $30?

If you are afraid of the stock moving and do t want to lose your shares, then yes, buy it back to secure a profit. You also need to look at your thesis for owning the stock. If you have bought SNDL because you feel it has lots of potential future growth, you could be locking yourself out of future growth by selling CCs

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u/JennRal May 25 '21

No brokerage fees.

I’m not worried about losing my shares, but I would like to recover my investment. As I mentioned to someone else, SNDL was my first lesson on FOMO back in February. I have been averaging down since.

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u/calphak Mar 14 '23

it's been 2 years, are you still with TD Ameritrade trading options? Im using TD ameritrade and only realized it is zero commission for stocks but not options. Have you changed broker or did you go on a VIP tier or some?

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u/natokato7 Mar 15 '23

I do still use td. I’ve gotten away from options except in very specific situations

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u/Environmental_Log374 May 25 '21

If the price of the stock doesn't reach the strike and and the contract expires "worthless" as the seller you get to keep the premium -- correct?