If you sell a call and the strike price is not reached, then yes, you keep the option premium. If the strike price is reached, your stock will be called away at the strike price of $8 and you will be given $8 per share, plus you get to keep the option premium.

If the stock drops and you want to get out of your option contract, you have to buy to close. You pay whatever price the option is worth — then you will be free to sell the underlying stock. You can’t sell the stock until you buy back the calls, because you would then be short a call (you would be what is called a “naked writer,” exposed to unlimited risk.) You can only write naked calls if you have a very high-level option clearance and — generally — at least $250,000 in your trading account.

You may be authorized to sell cash-covered puts. That is, if you have $10,000 cash, you can sell puts on stock worth $10,000. While buying puts is a bearish strategy, selling them is bullish. If the stock falls below the put strike price, then the stock will be “put” to you at the strike price. You will get shares of stock in return for the cash you put up. You are thus hoping that the stock rises so you can keep the option premium without having to buy the stock — thus, writing cash-covered puts is a bullish strategy.

options are somewhat confusing. selling covered calls is a good way to make a few bucks while holding on to a stock…..actually buying options is a wild ride and best left to someone that has lots of money to lose quickly, because that is what will/can happen.

options have puts and calls. lets say you were an options buyer, if you are, you would buy puts on a stock if you felt the price of the stock was going to go down. if you thought the price was going to go up, you would buy calls

1 option or 1 contract = 100 shares of stock

when you sell options, you are the seller not the buyer. so you want the opposite things to happen compared to what the buyer wants to happen. when you own shares of the stock you are selling the option on, you are selling covered calls. if you sell options and do not own any of the stock, you are selling naked options which is very risky and should be avoided unless you have a large amount of money available.

so let’s say you owned 100 shares of abc stock and you bought it at $20.00 a share. Now the stock has gone up to $23.00 a share and you decide you are going to hold on to it for awhile. so go to an options page for your stock abc to see what kind of money you can make for selling 1 option (you have 100 shares and can only sell 1 covered call) and you see that for an option that expires on the third friday of october (they all expire the third friday of each month) you see bid .10 asked .15 with a strike price of 25. so 25 is the level that you don’t want the stock price to go to or over, it is your high limit.

since you are the seller you will get the bid price of
.10 so you always multiply that amount by 100 to see what you would actually receive and you would receive $10.00 minus whatever commission you are paying.

so what do you want to happen? well by the third friday of october, you want the stock price to be less than $25.00 the strike price you have choosen. If it is, you get to keep the $10.00 you received when you sold your option (you received this money right away in your account when you sold it) and you still get to keep your stock, and hopefully it is still higher than the price you originally bought it.
so basically you made $10.00 for just deciding to hold on to your stock. what happens if the stock goes to $27.00 on the 3rd friday of october. if it does, your stock would be sold for what price? no not $27.00 where it is trading, your stock would be sold at $25.00 the strike price you sold your option for. but you still get to keep the $10.00 you made for selling the option, and you made $5.00 on the price of the stock going from $20 to $25, not so bad, the thing you missed out on was the extra $2 you could have made if you had not sold the coverded call. sometimes this happes and sometimes it doesn’t that is the game of it. if you look on an options page, you will see the more you get away from the stock price as the strike price gets higher and higher, the less someone will pay you for playing this game.

so if you were selling covered calls, you would be selling to open the game, and buying to close. just like with a stock you and buy and sell the options any time you want if you decide you would like to get out of the option, you don’t have to hold on to them till they expire. so when you sell covered calls you want the stock price to stay below a strike price that you select, I’m not exactly sure if you can sell a covered put or even if something like that exists, but I think you would be more interested in selling covered calls. I hope this helps, it sounds complicated but once you do a few it gets much easier. I would stay away from buying calls or puts you money evaporates faster than you can believe. selling covered calls is much safer and lots of fun and a good way to make a few bucks when you have 100 shares or more of a stock that you are going to hold on to for awhile. rock on…

You cannot sell to close unless you have an open position.

In the options market you can:

Buy to open
Sell to open
Buy to close
Sell to close.

Opening a position is writing or initiating the contract. You buy or sell the option to/from the market maker.

Close a position terminates the contract. You do the opposite of what you did when you opened the contract.

You will not be allowed to sell to open at your trading level, unless you own the underlying security. You must own 100 shares of F before you can sell 1 contract to open.

Assuming you own 100 shares of F, you sell to open 1 contact Sep 22 @ .10 (bid). If the contract expires worthless (F is below $8 at the close of the expiration date), you will keep the premium. If the price goes down, you still keep the premium, unless you want to sell the stock. Then you would “buy to close”. You will have taken a serious loss, because it will cost you another $8 to close the trade, for a total loss of $6, plus whatever loss you took as the stock fell.

NOTE FOR THE NEW PERSON: TRADING COVERED CALLS HAS THE SAME RISK PROFILE AS SELLING NAKED PUTS. DO NOT DO THIS UNLESS YOU ARE VERY SURE OF WHAT YOU ARE DOING. I have lost thousands of dollars selling covered calls, and then have the floor drop out from under the stock. I rode applied magnetics from $12 all the way to zero for a 100% loss.

You probably can’t sell puts to open at your level. If the stock drops, you would have to pony up some serious dough if you tried it.

My advice: Find a trending stock (either way). Confirm the trend using GMMA (google it). Then buy calls or puts to ride the trend. Sell them back when the trend stops. Keep your stops within 3 ATR’s. Buy at least six months out so the time decay doesn’t eat you. Stay away from that covered call stuff.

And if you’ve gotten this idea from reading any books by Wade Cook, please burn the books and forget anything you think you might have learned. That guy was a crook, and his advice is next to worthless.