Q: Hello 5i
I wonder if you would enlighten me on another aspect of your option selling. I know the object is to create premiums. But, psychologically I feel that I have lost if I buy back a stock which has risen and been called away. For instance, last month I sold a call on shop US for $94. Now, it is $100. Would you let it go, buy it back at the new price and sell a new option; buy back the call and sell another option or let it go and buy another stock that may be better priced to sell an option on. The answer is probably obvious for you. But, I am a bit muddled on this
Thanks as always
I wonder if you would enlighten me on another aspect of your option selling. I know the object is to create premiums. But, psychologically I feel that I have lost if I buy back a stock which has risen and been called away. For instance, last month I sold a call on shop US for $94. Now, it is $100. Would you let it go, buy it back at the new price and sell a new option; buy back the call and sell another option or let it go and buy another stock that may be better priced to sell an option on. The answer is probably obvious for you. But, I am a bit muddled on this
Thanks as always
5i Research Answer:
Keep in mind the 'loss' is not as bad as it looks. If an $94 option is sold, one gets a premium. If the stock goes to $100, yes, there is a loss on buying back the option, but the investor now has a $100 stock and not a $94 stock. In a covered call strategy, we would buy back the option (the loss can be applied against gains) and re-up by selling a new $100 call option.