Options (CALL) Tracking and HOLDINGS cleanup

larryg_lslmo

Read several articles on entering CALLs but my ignorance is getting the best of me, even though folks like @K.O. (Win-Premier) did good jobs explaining ... the lightbulb was just not coming on. And no doubt I will use some incorrect terminology as am new to Options Trading.

Am going to post the hole enchilada in hopes of getting the specific answer/confirmation I am looking for AND to help someone else in a similar boat.

Am using Q-HB&RP R27.28 subscription and the download broker is Schwab.

So here is the story (numbers changed for easy math): Owned 500 shares of stock XYZ. Placed a 4wk CALL at $100 and it was bought at $5.00 per share, while going stock price was in the low $90s.

Quicken downloaded from Schwab the following:

Short Sale
Security: CALL XYZ 100
Number of Shares: 500
Price Received: 5.00 per share
Commission: 5.00
Total Sale: $2,495.00

And the HOLDINGS page showed both the STOCK and the CALL. The Cash Balance (CB) and Total Market Values (TMV) were tracking fine.

On the CALL expiration date, the stock price was above $100 so the CALL was exercised. Q downloaded the following from Schwab:

Sell-Shares Sold
Security: XYZ
Number of Shares: 500
Price Received: 100 per share
Commission: 2.00
Total Sale: $49,998.00

The CB of the account was fine, however, the TMV was off because the HOLDINGS still had the CALL: XYZ in the list with a current quote much higher than the CALL value ($5.00) which was throwing off the TMV.

HOW TO REMOVE THE CALL ON THE HOLDINGS PAGE?

So long as there were transactions against that security, I could not delete it so some forum entries said to delete the transaction and make a manual (replacement) transaction. That would allow the HOLDINGS to be deleted. It did, however, the manual entry also created an entry on the HOLDINGS page, but the TMV is better since the quote and price of the holding are the same. But still not right.

So from what I read, am supposed to use a Cover Short Sell for just the CALL, but with no value, like so:

Cover Short Sale
Security: XYZ
Number of Shares: 500
Price Paid: 0
Commission: 0
Total Cost: 0

Meaning you do not touch the actual sell of the stock which resulted in the proper removal of that security from the HOLDINGS page. You only use the CvrShrt to remove the CALL portion of the security from the HOLDING page.

This seems to have worked. After all the reading, think I was missing:
a) The fact the actual stock sell remains untouched
b) The CvrShrt will remove the CALL entry still in the HOLDINGs.

I actually think the Schwab download for the CALL could have remained since it seems to have behaved same as the manual entry created.

Think I have answered my own question but looking for some confirmation the above is what was meant in several of the forum articles. Maybe this complete exercise will help another newbee!

Tom Young

Glad the light bulb came on for you.  Executive summary for out of the money covered calls:

When selling a covered call you enter it as a Short Sale.

If you close out the call early you enter it as a Cover Short Sale using the price you paid.

If the call gets exercised or expires worthless you enter it as a Cover Short Sale at a price of $0.

One wrinkle for the writer of the covered call when the call gets exercised: the premium received for the call adjusts the gain or loss of the stock sold at the strike price.  I'd guess Schwab will report that properly.

larryg_lslmo

Thanks @Tom Young ... it's a CFL with a bad ballast but the bulb is on nonetheless! :-)