Writing a Call Option to SELL Shares That You Own
Current Share price
Federal Ordinary Income Tax rate
State and Local Income tax Rates
Writing a Call Option to SELL shares
Option Sale Proceeds
Premium on Call
Strike Price of Call
Share Sale Proceeds (pre tax)
Out of the money
This assumes that the investor owns the shares and has made the decision to sell them as a result of the fact that they have
appreciated significantly and portfolio rebalancing calls for them to sell to get back into balance, in anticipation of an eventual market turn.
For these sorts of investors, this strategy has the risk that the market may turn before the option strike price is reached.
A market order to sell would be better if such a risk is deemed significant.
This strategy is known as selling "Covered" calls. The sale of the call option is "covered" because the investor owns the shares that will
be called away if the share price reaches the option's strike price.
Investors should engage in this strategy only if:
1. They own enough shares to cover the call(s) they have sold
2. They are prepared to have those shares called away from them.
If the call writer does not own the shares, it is known as writing a "Naked" call and this is not at all advisable for long-term investors.
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