Back To Answers
"What Happens To My Covered Call On Citigroup?"
Question By Farzin

"What Happens To My Covered Call On Citigroup?"

Hello: I own 500 shares of citi C for $4.00 each. On Feb 6 I wrote a sell to cover call option @42.00 for march 21th $5.00 per contract for 5 contracts. this is what my transation says. call-100 C MAR @ 5 Opening Trans- Covered Mar 21 2009. what I should be doing before March 21TH if the strike price is below $5.00 and if it is above $5.00. I thought I knew what I was doing to protect my investment, But I am now confused? Please reply. Thank you so much.

Asked on 23 February 2009

explosive option trading mentor Star Trading System Training Course
Find Out How My Students Make Money Consistently Through Options Trading In The US Market Even During An Economic Downturn!

Answered by Mr. OppiE

Hi Farzin,

To reiterate your question, you bought 500 Citigroup (C) shares when it was trading at $4 and then you wrote a covered call against it by selling the March $5 Call Options at $0.42 for a total of $210. You are wondering what is going to happen if C closes above $5 and below $5 upon expiration of the March options, right?

Ok, here's what will happen...

If Citigroup shares close above $5 upon expiration of the March call options, your Citigroup shares will be called away due to the call options being in the money and you would make in profit the rise of the stock up to the strike price of the call options sold + whatever amount you sold the call options for. Which means that you would make a total profit of $500 + $210 = $710. If you do not want your Citigroup shares to be called away, you could Buy To Close those call options on expiration day itself. In fact, if Citigroup shares rises significantly above $5 before expiration, you could also Buy To Close those call options before expiration in order to benefit from further rise in the price of the shares.

If Citigroup shares fail to exceed $5 by expiration of the March call options, those call options would expire worthless and you would pocket the full amount of its premium. In this case, if Citigroup shares closed at $4.50 upon expiration of the March call options, you would pocket the whole $210 premium + the $0.50 profit per share on your Citigroup shares for a total profit of $460.

What this covered call does not do is protect your position should Citigroup shares drop more than the price of the call options that you sold, which in this case is $0.42. In fact, Citigroup shares has dropped $1.77 since 6 February, which means that after offsetting the value of the call options you have sold, you would still be in a loss of about $1.35, which is still better than not having the calls sold in the first place.

In conclusion, Covered Call is a nice way to protect stocks that are may run into slight retreats but is generally expected to go up. If a stock is expected to go up but may also take a plunge, a Married Put should be used instead. Also, never try any options strategies before you have practised them on paper or in a virtual trading account.

High Yield Covered Calls High Yield Covered Calls Make Explosive Profits From Covered Calls!
Perfect for all Options Traders! Original eBook by!
This eBook Covers:
:: The Secret to looking for the PERFECT stock for Covered Calls
:: The number of ways to write Covered Calls
:: The two ways of measuring Covered Call returns
:: Most Importantly, how to automatically look for high yield Covered Call opportunities to make up to 25% a month!
This $29.90 eBook teaches you all these and more!

Average Reader Rating : 4.5 / 5 is a Masters 'O' Equity company and uses Masters 'O' Equity payment gateway

Response by Farzin...

Mr. OppiE

Thank you for your prompt response. I did the above transactions after I read about options in your site. I will be using this site to learn more and really appreciate that you took your time to answer my question and clear my mind of the doubts I had.


Reply by Mr. OppiE...

Response by Others...

Add Your Response Here

Continue your journey of discovery...
Click Me For Content Index
Click Above For Content Index

Have a Suggestion?

More About Covered Calls
More About Married Put
Learn All About Types Of Options Orders
More About Buy To Close
More About Sell To Open
Stock Options
Options Trading
Options Trading EBooks

Back To Answers Main | Go To Option Trader's HQ


Important Disclaimer: Options involve risk and are not suitable for all investors. Data and information is provided for informational purposes only, and is not intended for trading purposes. Neither, nor any of its data or content providers shall be liable for any errors, omissions, or delays in the content, or for any actions taken in reliance thereon. Data is deemed accurate but is not warranted or guaranteed. and are not a registered broker-dealer and does not endorse or recommend the services of any brokerage company. The brokerage company you select is solely responsible for its services to you. By accessing, viewing, or using this site in any way, you agree to be bound by the above conditions and disclaimers found on this site.

Copyright Warning: All contents and information presented here in are property of and are not to be copied, redistributed or downloaded in any ways unless in accordance with our quoting policy. We have a comprehensive system to detect plagiarism and will take legal action against any individuals, websites or companies involved. We Take Our Copyright VERY Seriously!

Site Authored by