selling covered calls

Creezy answered 2 years ago …

1. Sometimes, for this reason, it makes sense to sell the following month out. but you generally shouldn't have a short call that expires in more than 45 days.

2. ALWAYS calculate how much of the option that you are writing is EXTRINSIC VALUE as opposed to the intrinsic because when you write a call, you are essentially ONLY selling short the extrinsic value portion of the call. The intrinsic moves up in parity with the stock. So when you sell a covered call and the stock moves up 1 point, the intrinsic value portion of the call option also increases by 1 point so it's a wash. Remember, you're only shorting the extrinsic.

3.If you get assigned it's a good thing. You can just reposition yourself by repurchasing the stock and selling another covered call. Assignment is a positive because you get to keep the extrinsic that you collected. You are no longer obligated. Again, you can buy the stock again and sell another call.

4. For the reason mentioned above (3) people usually won't convert a long call into stock even if it's in the money. It makes more sense for the long call holder to simply sell out of the long call position rather than converting to stock. If the long call holder converts to stock, that long call holder looses the extrinsic value for no reason whatsoever. It almost never makes sense to convert a long option especially a call. (I say especially a call for tax reasons but I'm tired of typing so I hope this helps you.)