Tomorrow is expiration time for the March monthly options. If we had some covered call trades for March, do we need to take any action? The general rule for covered call trades is to do nothing at expiration time. The main reason to exit a covered call trade would be if the stock is, or looks to be, dropping significantly. If the stock is holding steady or increasing in value since entering the trade, your best bet, under most circumstances, is to do nothing and let things play out.
One scenario is that the stock price doesn’t reach your strike price. You still end up with the stock after expiration, as the option you created expires worthless. You received the money for the option when you sold it, and that ends up as your gain. You are free to do whatever you want with the stock. Do you want to sell it? Do you want to hold on for more potential gain? Do you want to turn the stock into another covered call trade for some additional income?
If the stock closes above your strike price, you can be called out. That means your stock gets sold at the strike price of the option you sold. If you sold the option out of the money, as suggested, then you have a profit on the sale of the stock plus the premium received when the option was sold.
When you enter a covered call trade, do not get overly caught up on the gains or losses displayed for the trade. Pay attention to what the stock price is doing. If the stock price holds or is heading up, then you have no concerns. The concern is if the stock starts to drop. If the drop is small, there is no need to panic. Our main concern is for a significant drop. In particular, we can lose money on the trade if the stock price drops more than the amount we received when we sold the call. If you feel the stock will continue to lose value, it is time to close the trade by buying back the option you sold and selling the stock.
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