what are the "mechanics" of a covered call in terms of dealing with the broker?
what are the "mechanics" of a covered call in terms of dealing with the broker?
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unsupervised · External communityPost link
External question — Personal Finance Stack Exchange
Author: unsupervised
Original post: https://money.stackexchange.com/questions/132820
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
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Besides the theory of the covered call,
how does it actually work with the broker
?
Senario, suppose I own 100 shares of the stock,
now I am going to sell 1 call option on the stock for the purpose of doing a covered call.
If the broker does not know or see that I already own the stock, they will require some cash margin.
Do I have to contact broker and tell them that I already own the stock and the call purpose is to create a covered call?
Or do they look and figure this out themself?
And what happens if the call is assigned? Does the broker automatically sell the stock,
or do they contact me, or do they pull money from the account without seeing that the stock
is there?
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Bob Baerker · External communityPost link
External answer — Personal Finance Stack Exchange
Author: Bob Baerker
Original post: https://money.stackexchange.com/a/132821
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
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All of this is computerized and happens automatically. On the most basic level, it checks to see if you have option trading approval, if you have the appropriate level of approval for the option transaction that you are attempting to execute as well as sufficient margin available if any is required.
On the back end, it's all automated. If you are assigned, they sell your stock.
All you have to do is make wise trading decisions and execute the trades properly. Other than that, it's like Greyhound: "Leave the driving to us."
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Quoted from Forex.com.bd-Editorial External question — Personal Finance Stack Exchange Author: unsupervised Source score (net votes, not local likes): 2 Original post: https://money.stackexchange.com/questions/132820 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Besides the theory of the covered call, how does it actually work with the broker ? Senario, suppose I own 100 shares of the stock, now I am going to sell 1 call option on the stock for the purpose of doing a covered call. If the broker does not know or see that I already own the stock, they will require some cash margin. Do I have to contact broker and tell them that I already own the stock and the call purpose is to create a covered call? Or do they look and figure this out themself? And what happens if the call is assigned? Does the broker automatically sell the stock, or do they contact me, or do they pull money from the account without seeing that the stock is there?
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