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Dumbguy questionsDumbguy questions
FirefighterB said: "Okay, so I'm looking to stick my toe into the options market to see if the sharks bite it off or if I'm having a feast. If they bite it, I'm going back to studying and buying some shark repellant. It worked for Adam West...
Anyway, here goes. So, to start off, I'm using Scottrade. I've signed up and been given access to a Margin Account and the ability to Buy and Sell Options. I would like to start off relatively safely and sell (write...correct?) a covered call on some DELL shares I have.
First off, I do not have 100 shares of the stock (I didn't have that much cash on hand when I bought the stock). Can I sell them since I do not have enough for a 100 share contract?
If I can, or even if I can't, the next step is buying a few options (again, baby-steps until I figure it out). I have the option in the buy/sell menu to Buy/Sell to Open and Buy/Sell to Close.
As for writing covered calls, I'm guessing I'm Selling to Open. If I'm buying straight options, I'm guessing that I'm Buying to Open. Am I right in this thinking. Is this really as simple as I think it is? I like to overthink things and get a bit on the confused side, so any help is greatly appreciated.
Thanks."
drdan said: "OK Firefighter,
You need at least 100 shares to sell/write one contract as a covered call. If you do not have the stock to "cover" your sold call then you are writing naked calls which in the beginning is a "no-no" and your broker probably will not let you do it anyway.
As for your other question, yes it is that simple. You buy to open a put or a call and you sell to open to write a put or call.
Keep the questions coming."