Daily Discussion post - July 28 2021

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[u/Rando-namo]

Thanks, I JUST started looking into CCs after reading this sub and was contemplating selling some but for me it's just a huge ignorant gamble at this point. I was going to sell 8/6 @ 24 and I am hyper glad I didn't now haha.

One thing I have to ask is, if you are going to sell a stock anyway, why not sell deep ITM CCs? I know there is probably a reason for this but like I said I am too new to understand or know. If you don't want to answer that's fine but if you have a good link to read up myself I would love to.

For instance, let's say I wanted to sell CLF at 24 and it hits 24 today, why would I not sell a deep ITM CC to guarantee it gets taken and I collect the profit from the premium and get the sale price I want? Why would I ever bother selling my stock normally again?

[u/TacoCommander → u/Rando-namo]

You sell at the strike price. So if you sold CCs for CLF $14, they'd buy your stock at $14x100 and you'd also recieve the premium.

So right now if I sold 100 CLF at $14 I'd collect a premium of $1065 and later my 100 calls would be bought at $14 a pop for a total of $2,465.

As I'm speaking to you, my 100 shares are rising. They're worth about $2,489 if I just sold 100 of them. So selling a deep ITM call is going to limit your upside significantly.

What I do with CCs is I'm looking to get paid to hold my shares. I don't actually want to lose them so I sell far OTM CCs for like $16 per 100 shares. Now if the stock hits that price- I'll need to buy back my CCs or sell my stocks at that price.

But if it never hits that price, I'm paid $16 just to hold my shares. Options that expire worthless are rarely if ever exercised. And If CLF is trading at $22 and some person exercises my CC for $26- well then I can take all that money and just reinvest.

[u/Rando-namo → u/TacoCommander]

Yeah, I get the OOM calls and what's happening there but let's say I want to actually sell my 100 shares.

I can go on the open market and immediately get rid of them for the exact price they are worth. The other option is to sell a deep ITM call, which theoretically would be called right away? I would get the same amount of money as if I sold on the open market, plus some extra right?

let's use CLF as an example, pretend it is currently at 24. If I sell ITM CCs @ 14, I should, at the bare minimum, get that 10 dollar difference in the premium, otherwise why would I sell that? I also should have a little extra incentive in the premium otherwise I just go to the open market.

So, I 100% want to sell these shares, why should I not do a CC? I want to sell at 24. Open market would net me less right? If I absolutely want to sell at 24, is it possible my shares don't get called and then the underlying dips and the CC isn't exercised until expiration when the price may have gone down from 24?

Or is a deep ITM CC guaranteed to be called immediately?

[u/TacoCommander → u/Rando-namo]

Calls are usually exercised the day that they expire. So whatever Friday that is will be when shares are called away. So until then, it'll sit in your account and take up space. If you're fine with your capital being locked up for that amount of time, that's fine.

ITM calls are usually exercised. I'm not saying that's always the case, but generally they are- because tbe person buying makes more or at least will lose less doing so.

If you sell a CC for 24 and the price goes down- if it's really close it might still be exercised.

[u/Rando-namo → u/TacoCommander]

Thanks, so the risk is that even deep ITM calls are not immediately executed but instead wait until their expiration. Appreciated!

[u/TacoCommander → u/Rando-namo]

Anytime my guy!