SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe)
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: Henry who started this subject1/9/2001 3:45:34 PM
From: Robert V. Cavaleri  Read Replies (1) of 2241
 
Newbie option question here. Been reading some books about options trading. One thing that is not explained is, the risk associated with writing calls against a margined position. What happens in a scenario where you are writing a covered call, but the shares you owned were on margin, and you get called out?

Let's say you have 5K in your account, 10K purchasing power.

You buy 700 shares of XYZ at 10 (7K investment, 2K on margin)

You then write 7 XYZ 15 calls against your margined position (assuming 15 calls were trading at say 1 3/4, proceeds from this transaction would be 7 * 100 * 1.75 = $1225.25)

What happens if the stock you bought at 10 (and partially margined by 2K) rises to 15 and you get called out? The net sale of the stock would be ($10,500) minus the margin ($2000) = ($8500) Is being called out the same as simply selling the shares that you own, and you are left with the credit of the call ($1225.25) plus the proceeds of the stock from 10 to 15 on 700 shares ($10500) minus the margin debit ($2000) = $9725.25?

I hope this example isn't too complicated. Appreciate any insights as to how this works. It doesn't seem to be explained in any of the books I am reading.
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2025 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News