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Bush, Dean wrote:
>
> I hope you can help me.
> I'm considering selling the UIS (Unisys) Nov 15 Call. (I own the underlying
> stock).
> My question is: If I do this on Monday, and the expiration date is
> obviously November 21, does this mean that the premium I'm paid goes into
> my account and that I hold the underlying stock until option expiration,
> and after expiration I can sell the underlying stock and keep the call
> premium too?
> Thank you for your help.
> Dean Bush
When you sell a covered call option, the premium will go directly into
your account. However if the value of the stock is above the strike
price any time before the expiration date and including the expiration
date, you risk having the call "exercised" which means you sell your
stock to the other party for the agreed on strike price. This is called
an "in the money" call option and the amount it is in the money is the
amount the stock is over the strike price. Ex: Say Unisys is $12 and
you sell the $15 call option, it's out of the money until Unisys goes
over the $15 stock price.
If you sold your stock before the call expired, this is called a naked
call option because you no longer have the stock to back the option, and
this of course is extra risky.
Bottom line is:
1) You hope the stock doesn't crash, in which case you
keep not only the option premium but also the stock.
2) If the stock goes over the strike price, you're likely to be
exercised and have to give the stock up. If you want to keep it you'd
have to buy the option back at a more expensive price than you sold it
for. If you are exercised, you have to sell at the strike price even
though the stock price may be much higher. It's my understanding and
experience that if a call expires $0.75 or more in the money, the broker
ensures that you are exercised at expiration.
Hope this helps.
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