Some time ago, I set up an X short straddle (11 short put/11 short call) on the notion that the underlying's volatility was going to collapse post-earnings and that it would quiet down and stay in a fairly narrow range long enough for me to get out of the setup at 25% max profit (which is about all I expect out of those; I just take the money and run). Naturally, were everything to always go as planned, premium selling would be easy, and all of us premium sellers would be millionaires, well, pretty much overnight. Not only has volatility not collapsed, price has dipped such that the short call of the setup is nearing worthless (it goes for .11 right now) and the short put is under water.

The short put is at the 11 strike (current price is pennies above 8.00). That alone militates in favor of not waiting until expiry and then getting assigned 100 shares of X at 11.00/share. This is because, post-assignment, you are going to want to sell calls against the long stock to reduce your cost basis in your shares, preferably with an expiry 45 days out.

If price of the underlying at expiry is below your short call strike, you keep the premium, reducing your cost basis in those 100 shares you've got; you then repeat the process, selling short calls against the position 45 days out, again reducing your cost basis. If price of the underlying at expiry is above your short call strike, those 100 shares are "called away" at the price of the strike and you realize a profit.

If you look at selling 12 or 13 calls, well, there simply isn't as much premium there 45 DTE             as there would be were you to be selling 9 or 10 calls against a long stock position around current price. Naturally, you can very well wait until you get assigned, but in order to get meaningful premium from short call strikes above 11 (when the current price is 3 strikes below that), you will have to look at expiries way out in time to reduce your cost basis in the 100 shares that you're holding. In other words, you're going to be the proud owner of 100 shares of X for probably way far longer than you'd like (which is not necessarily a bad thing, particularly if you love US Steel). Me personally, the only reason I take a position in shares of stock is if I'm trying to mitigate the loss of a setup, which is exactly what I'd be attempting here, so the shorter period of time I'm in the position tying up buying power, the better.

The other reason why you do not want to get assigned is simple: your broker will want a fee to do that. If it is pretty evident that your setup is not going to work out by expiry, it is actually cheaper to close out the loser (in this case, the short put) and then to proceed to buy 100 shares of stock at current price and then sell calls against that stock to reduce your cost basis in it and mitigate the loss experienced by the failure of the setup.

Naturally, one doesn't always have the luxury of enduring an assignment or buying the underlying stock, since this, in some instances, can be quite onerous, especially for a small account holder; it can tie up substantial buying power. In evaluating the question of whether you actually want to take a position in the underlying stock and then sell short calls against it (covered call), you need to ask yourself whether you want to tie up that buying power, roll the setup for duration on the notion that the trade will eventually work out; or take the loss and move on.

In this particular case, 100 shares of an $8 stock is not particularly onerous (especially now that I know Carl Icahn is on board ... ), so I'm comfortable with buying the underlying and selling calls against the position. Were it to be AAPL             , well, that would be a whole other story ... . Although I have about 3 weeks left for the setup, I'll look at closing out the short put about 7-10 days before expiry if it is clear that there's no way that I'm going to get out of the short straddle at 25% max in the time remaining.
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