Hi guys
I need help to start doing covered sell call
I have a long leaps on QQQ expiring on 15.01.2027. So I want to Sell Call Option on QQQ expiring on let say October. Strike price 500$ for example
How can I cover this if it hits the strike prise when the Long Call is on 2027?
I am in EU so I am not allowed to to buy ETFs but just options on them
Thanks
Posted by Minute-Shine4537
2 Comments
Hey, I think there are some ways to deal with this:
1a. You let the short call expire and get assigned. This results in you being short 100 shares of QQQ. As you cannot buy them outright, one way to close the short stock position is to exercise your long call, losing all the extrinsic value, So this is not preferable.
1b. A better way to acquire 100 stocks of QQQ to close your position might be to sell 0DTE ATM puts on QQQ, giving you some extra premium. If they expire worthless, just repeat until you get assigned to close your short position.
3. You roll the short call out and up to give QQQ some time for a retracement. Repeat until you can finally close it on favorable terms. Note: you did not specify your country, but in Germany the 20k rule might affect this strategy if you repeat it too often.
I’m sure there are lots of other way to handle this.
You are going to Sell a Covered Call on QQQ , which is about $500 today, so you are buying QQQ for 45-50k in a CASH account. Why tie up 50k when you can get 4.5% interest and still SEll Calls on QQQ. In a Margin account you need about 5k Buying Power to Sell a QQQ (Call or Put or Both). And the entire 50k invested in Sgov or Tbil is still getting interest and the broker counts about 70% of the 50k as Buying Power.
EDIT:: On first read I skipped over your EU , cannot hold U.S. Etf. Really not clear on that , but I am starting to see that a lot. So you have set up a Calendar with the Leap , so if you are Assigned on the following Monday you Exercise your Leap and lose what value that Call has. The 500 strike is over $70 or $7000 which has to be paid in cash. So you have to make $70 in premium before any assingment happens to break even. If the stock is called away from you at 520 I guess you make $20 a share, since you will be buying it back at $500.
My way if you are Assigned over the weekend ,you just close out the stock position with cash on Monday? I think being Naked the Call is cleaner, and you do not lose 7k up front.
Tasty defines BP in these vids and a 100 others.
https://ontt.tv/3jAf4Ba Buying Power Factors Oct 28, 2020
https://ontt.tv/2CLbOjn What Affects Buying Power? Nov 14, 2019
https://ontt.tv/UpQO3 BPR and Options Risk Feb 27, 2024