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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: Dan Duchardt who wrote (3020)	11/21/2001 11:10:25 AM
From: LemurHouse	Read Replies (2) of 5205

Question for the thread: Can a seller of a covered call, when called out and required to deliver shares in the underlying, short the stock and deliver the shares from the short position instead of his long position? Case in point. Last friday, I had a short position in AMAT NOV 37.5 calls. The calls were covered by a long position in AMAT. The calls were in the money and would certainly be exercised. Rather than be called out I closed the position by buying back the calls at a slight loss. Setting aside for the moment any discussion of repair strategies, rolling out/up/etc, my other alternative would have been to let the shares be called away from me over the weekend. If I had allowed myself to be called out and delivered the shares from my long position in AMAT, I would have faced substantial capital gains liability. To avoid this liability -- and assuming for the mompent a desire to maintain the underlying long position -- I could have bought AMAT at the close, and at tax time designated the new shares as the shares that were delivered under the options contract. My question is, is there a third alternative when delivering the shares: I.E. could I have instructed my broker to establish a short position for me in AMAT, and to deliver the shares from the short position. That would have left me on Monday morning with my original long position in AMAT, plus a short position for the number of shares delivered as a seller of the calls. i.e. shorting against the box. I could then have closed the short position in a few days when the share price had drifted back down. I tried to do this on Friday, but was told by my broker that I couldn't. I didn't have time to explore the issue with him, but want to set it up in case similar set of circumstances arise again. Anyone have any insight into this question? Thanks. AD

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