Here is the scenario where I get assigned a stock say at 100, then I sell a call at 100 using one week expiry. Price will do what it does, goes and up, is there an optimal way to use the greek to know when we should close the sold call off with minimal lost as stock price is going up? The stock is making the gain but the call is losing, I want to take the stock appreciation so I would close off the call manually. and the lost is offset by the stock. Hope that makes sense.
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Optimal to close off a sold option with stocks
- Thread starter Ludovic
- Start date
Not sure if there is an optimal way to use the greeks to know when to close the call but I would say it would be around the breakeven of the call
or maybe a little past it some say to use 2X your credit
It may also depend on how soon after you placed the trade it gets there but what do you do if at that point the stock turns around and goes back down do you put back the call you just closed ?
or maybe a little past it some say to use 2X your credit
It may also depend on how soon after you placed the trade it gets there but what do you do if at that point the stock turns around and goes back down do you put back the call you just closed ?
the way i usually look at these is to see how much of a hedge i can get if the stock goes down, but if you only care about it going up you can use the option delta to decide at what point it's not worth keeping the current call or rolling up and or out in time. an at-the-money call has a 50 delta. that means if the stock goes up 1 dollar, the call will go up, nominally, 1/2 that amount. the further the stock rises, the option will go up higher, percentage-wise. when the option has a 75 delta, it will go up 75 cents for ever dollar the stock goes up. at some point you'll lose as much on the call as you gain on the stock. you could say the optimal point is at the money.
Also if you expect the stock to go up you would not want to place the call at the money as it will soon go in the money and has a potential to be called away but you may be limited in the amount of premium you can get in 1 week so
Ideally you would place the call far enough from ATM to get a good amount of premium and still be far enough from atm to give it time to decay
Ideally you would place the call far enough from ATM to get a good amount of premium and still be far enough from atm to give it time to decay
usually roll up and to the week after.Not sure if there is an optimal way to use the greeks to know when to close the call but I would say it would be around the breakeven of the call
or maybe a little past it some say to use 2X your credit
It may also depend on how soon after you placed the trade it gets there but what do you do if at that point the stock turns around and goes back down do you put back the call you just closed ?
yeah the whole point for me is to be called away so I can get the full premium. and yeah i would miss on the stock appreciation but I Can also close out the Call manually and then sell the stocks at higher price too. so it depends.Also if you expect the stock to go up you would not want to place the call at the money as it will soon go in the money and has a potential to be called away but you may be limited in the amount of premium you can get in 1 week so
Ideally you would place the call far enough from ATM to get a good amount of premium and still be far enough from atm to give it time to decay
It's either one or the otheryeah the whole point for me is to be called away so I can get the full premium. and yeah i would miss on the stock appreciation but I Can also close out the Call manually and then sell the stocks at higher price too. so it depends.
Originally I thought you were trying to keep the stock appreciation so you would close out the call but if you don't mind having the stock called away than of course you can keep the premium and let the stock be called away and than buy back the stock or you can also sell a put at the same price or lower and let it get assigned that way you get the stock at a lower price and keep the put premium
The trick is to find a stock that does not move too much but still has a good enough premium which is difficult to find a stock that does not move much like a bank stock does not have enough premium on the other hand a stock like Tesla moves a lot so you get a good premium but you have to be on the right side of the trade otherwise you the stock may run away and have to wait to come back to a certain point where if you get enough premium to break even or even make money