Key insights
- The post describes a user's experience selling a covered call and observing a drop in its market value. The decline is likely due to a decrease in the underlying stock price, reducing the call option's value. While the covered call position's market value fluctuates, the user's primary concern should be the underlying stock's price movement and the potential for missed upside if the stock price exceeds the strike price. The covered call strategy limits potential gains but provides downside protection up to the premium received.
this morning i "sold to open" a single OTM call contract for a stock i own lots of. first time doing it. it's showing up in my positions summary as QTY (-1) call option at whatever date and price. i'm equally happy pocketing the premium and holding the stock for a while longer, or selling my stock at the strike. the underlying dropped a bit after i opened the position, and the position went on to lose market value by COB today. i'm wondering a few things.
1 - why would the market value of my position drop? is it because i still hold the underlying, which dropped? or now there are fewer buyers for the call option, driving down the value of what i'm selling?
2 - do i need to care about the MV of this position? are my losses still limited to drops in the underlying / missed profits if the stock were to blow past the strike and i'm forced to sell?