I finally bought my first covered call option. It didn’t go as expected but here’s how it went down.
Buying Stock
I decided to buy AMD. You want to pick a neutral stock that won’t have big increases because you don’t want the stock price to go in-the-money—above the strike price. I just searched a few recommendations on good call options and decided on AMD. It wasn’t too deep.
I bought the AMD stock at a price of $92.02 on 23 May. The total for the 100 shares was $9,202…obviously. You do need 100 shares per contract because that’s the basis of 1 option—100 shares.
Selling the Covered Call Option
The next step is to sell an option. I sold AMD 250516C00100000 option. This code says it’s an option for AMD with an expiration date of 2025-05-16, call option, and a strike price of $100. I sold that option and was paid the premium for the option—$285. Remember, selling the call option means I promise to sell to the person who bought my call option the 100 AMD shares at the price of $100 by 16 May. The buyer has the option to exercise their rights so there is a chance I don’t sell my AMD shares.
I use thinkorswim to trade options. The main thing I was looking at for deciding which option to sell was thinkorswim’s out-of-the-money probability. You can find it in the option chain section of their trading platform. Again, that was the main decision on picking the 100 strike price. The AMD 250516C00100000 was the first option near 70% probability of OTM so I picked that one. Obviously, in this market the stock prices are moving fast!
What’s up with my covered call today?
Today is Saturday 17 May 25. The 16th has passed. I took a look at my app and I’m still showing 100 shares and a sold option which is how it’s looked over the last 3 weeks. I do know that expiration dates are the end of the day so maybe something will happen on Monday morning.
Here’s the breakdown: The current AMD price is $117. It didn’t stay as “neutral” as I had hoped but here we are! That is unrealized gain on AMD of about $2500 over the 3 weeks I held the stock. Remember, the option loses value of time so the value of the option is now -$1,400 in the app.
Thinkorswim shows my net gain on these trades is now $1,100. I don’t think this is a true reflection because the option I sold made me promise to sell my AMD stock at a strike of $100. This would be $8 of gain, so if the option is exercises I’d make $800 of realized profit. Not sure where my trades are falling in all this confusion but it seems I may have got the best of both worlds—unrealized stock gain and an unexercised call option. I did see some places saying most options are never exercised but in this case, it should be because the buyer would be saving $17 per share on buying AMD so it makes logical sense. We shall see come Monday!
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