Suppose I sold a CC that I had to close.
If the strike is 100 and I paid 10 to close the option, would my breakeven be 110 or 120 (ignoring the premium i initially earned and my pps)?
If I had been assigned I would have $110. 100 for the sale and 10 that I didn't spend.
If closed and the stock rises to $110 I would have $100. 110 minus the 10 I paid to close.
If closed and the stock rises to $120 I would have $110. 120 minus the 10 I paid to close.
It would have been better to not close the call if the stock closes at anything below 110.
The stock needs to go above $120 to make closing the call the correct play.
Is this right?
Thank you
Should I have let my call get assigned?
byu/Kaw_meh_d inoptions
Posted by Kaw_meh_d
1 Comment
Selling a covered call typically caps your max gain. That’s probably the cleanest way to think about it. If you’ve sold a covered call and then want to uncap your gains you’ll need to pay to do so, typically paying generally what the movement of the stock has done to the intrinsic value.
So if you have a $100 strike and you want to close it and closing it costs you $10 per share ($100 total), then you basically cost yourself $10 per share that the stock will need to grow to cover your cost to uncap your growth again.
I think you’re doing weird things with counting or not counting a theoretical $10 you don’t spend. If it costs you $10 to BTC a $100 strike then theoretically the stock needs to be $110.01 for that to be worth it.