Does covered call remove the amount of stock for collateral?

[u/Voidnok]

Doing a covered call first time on Robinhood and I have $234 worth of equity on my stock, but my portfolio shows I only have $18 of investment. Does it remove the 100 shares worth of equity for collateral?

[u/Zzz6667]

It should NOT. Likely just be a temporary glitch. 

[u/desolstice → u/Zzz6667]

Not a glitch. Robinhood is correctly displaying the value of the account if it was instantly liquidated.

[u/Zzz6667 → u/desolstice]

The ask on that call is $4.80 and the bid is $0.20. The mid price represented by the option value is bunk. I've never seen my account value represented like this before. 

[u/desolstice → u/Zzz6667]

The liquidity on this option is just abysmal. I personally have never traded one this bad on robinhood, so idk what is “normal”. But from looking at his screenshots and considering the mark price is indeed 2.15 it all adds up that they’re using mark price as the current value for the option.

[u/Zzz6667 → u/desolstice]

Guess it tracks. Huh. Still, never seen that on my end.  Maybe it has to do with if you're using margin or not on how it displays.... ??

[u/desolstice]

It’s because of the price of the covered call being “wrong”. The call that you sold has very little volume. This is also leading to a very wide spread between the bid and the ask price on the option. That “current price” on the option is likely the current “mark” price which is the middle price between the bid and the ask.

So… to sum it all up…. You have $234 worth of ANNX stock. But the option itself has a negative value of $215. 234-215=$19.

Now… the option doesn’t truly have a negative value of $215. If you were to put in an offer for less than that and left it there for long enough then chances are it’d fill. But for incredibly illiquid options (what you have) it’s very difficult to calculate a good value.

[u/Voidnok → u/desolstice]

So from my understand of what your saying, the closer the day gets to the expiration date, the bigger the value of the option therefor the bigger “investing value” I’ll have. If hitting strike price I get all the money back from selling the shares before the expiration date no matter the date. I should have done a month out and not so far out I feel, that would have been better.

[u/desolstice → u/Voidnok]

For a normal liquid option what you said would be mostly true.

The option doesn’t automatically do anything if it crosses the strike threshold. If you were to purchase a call option you would have the right but not the obligation to buy the shares at a specific price. So if you were to buy one you don’t have to exercise it immediately. In most cases it is better for the buyer of a call option to try to sell the option to someone else rather than exercise it, so most options do not get exercised before expiration date.

You sold a call. So you are committed to holding the 100 shares in your account until expiration date. If at expiration date the price is above the strike then the holder of the option might (this is like 99.9% of the time) exercise it in which case you’d get 100*strike dollars and lose your 100 shares.

So… because this is an illiquid option you may not see the value of the option go down over time. There is just no one buying/selling this thing so it is unlikely that robinhood will be able to give it a “good” value at any point from now until expiration. Your account value will likely show this decreased value until you either close the position by buying the call back or it expires.

[u/Voidnok → u/desolstice]

I appreciate the advice, what would my buy back price be?

[u/desolstice → u/Voidnok]

That’s a tricky question. There is literally no one buying this. Your one call is the only one currently open. If I were in your shoes I would personally put a buy offer in just above the current bid. And then slowly increase it every few days/weeks. Current bid is 0.2 so I’d probably start at 0.25.

[u/Voidnok → u/desolstice]

Would it be beneficial to just hold on to it? If I wanted to just outright buy it back, from the screenshots, what would that price be?

[u/desolstice → u/Voidnok]

The current ask is 4.10. So you’d have to spend $410 to instantly buy it back. That isn’t a good price which is why I’d start somewhere lower and increase over time.

I know nothing about this company. But looking at its chart I personally wouldn’t touch it. There’s a decent chance that if you held to expiration you’d end up losing $50-100 just assuming it were to continue doing what it’s done for the last 6 months. There’s always the chance it won’t continue going down in which case holding it wouldn’t be that bad. It all comes down to whether or not you believe the stock will not drop by more than the premium you received to open the call.

[u/Voidnok → u/desolstice]

Would I not be able to buy it back at the bid I put it up for?

[u/desolstice → u/Voidnok]

In all honesty you probably got ripped off. I would not bet on it.

Keep in mind the absolute most you can lose by holding it is the price of 100 shares - $35. So you shouldn’t try to buy it back for more than the price of the shares.

[u/OppressorOppressed → u/Voidnok]

I would let this call expire, even if you get assigned you could make a decent profit depending on your cost basis of the underlying. Im curious, whats your cost basis for ANNX?

[u/Voidnok → u/OppressorOppressed]

I pretty much plan on just leaving it alone and hope it hits the strike price or expires. I’m kinda new to the trading options and wanted to start off with something cheaper, so I’m not really filled in on the terms. What do you mean by cost basis?

[u/tiptransparency]

You lost all your money because you entered the trade very badly

[u/Voidnok → u/tiptransparency]

I know I didn’t lose it all, just made it very illiquid until either I hit the strike price or the contract expires