I am very confused on how you execute these trades when you are closing the positions. I can't sell my calls for a profit without first buying back the ones I wrote.
Pretty simple:
Stock is between long and short call strikes
In this case, the long calls have value, and the short calls will expire worthless. During that last Friday, the short calls will have a bid/ask spread like 0 x 1/8. You can't sell them, but you can buy them for an eighth. So you buy them back first (which costs very little compared to what you sold them for) and that puts you in the clear for your long calls, which you're now free to sell.
If you wanted to exercise your long calls instead of sell them, you could do that without buying back the short calls. Your new stock will cover the short calls, but they're expiring out of the money anyway, so it's extremely unlikely that you'd be assigned and lose some stock. (It would be profitable for you if it happened, so you wouldn't mind anyway.)
Stock is above short call strike
Now you either get called out on everything, or you close the position first. If you want to just be called out, you do nothing. On Monday you'll find out what happened; you may have some stock left over if you weren't fully assigned.
If you want to close the position, then you have to buy the short calls back first, then you can sell the long calls. Buying the calls back first might take a lot of cash, but you could probably call your broker and get the order in without worrying about the cost; so long as you're going to sell the long calls, you'll have enough money to cover the cost of the short calls.
Doug. |
