Structure of a closing trade

All of the open positions are of the form (Buy stocks for company XYZ, Sell an equivalent number of calls)

A position will be closed because of one of the following reasons.

1. Expiration in the money
• The sold call option gets exercised (or called). This can happen anytime up to the expiration date of the sold option. This will happen only if the market price of underlying stock (also known as security) happens to be above the strike price of the sold option (otherwise, the shares could just be bought off the market). When a call option gets exercised, the seller of the call (in this case us) are obligated to furnish shares of underlying stock to the buyer of the call (one who paid us the premium). In addition to the already paid premium, the buyer will also pay us an amount equal to strike price of the call option for this transaction. If the sold call option gets exercised, then the position will realize maximum profit (This number is posted on the blog when such a position is opened)
2. Expiration out of the money
• The sold option does not get exercised. This will happen if the market price of the underlying stock happens to be less than the strike price of the option. It does not make sense for the buyer to exercise this option because he/she can obtain shares from the market at a lower price if interested in doing so. In any case, the premium that was paid earlier is ours to keep. There are multiple actions a seller can take under these circumstances such as
1. Exit the position by selling the shares. Depending on the break-even point for this position (This number is posted on the blog when such a position is opened), this may or may not end up in profit.
2. The seller can also chose to sell future calls for these shares and receive premium for the same. This is equivalent to opening up a new position (where the initial price of establishing the position needs to be adjusted to account for gains/losses incurred by current position)
3. Safety Check

• I decide to close the position because it is not doing so well before the expiration date. I watch all of my open positions very closely and the moment a position starts hovering around its break-even point, I will close it. It can be done by selling the shares and buying the call options back from the market to close out any obligation.

I intend to publish the following information about each closing trade.

Type of closing trade (whether it was due to reasons 1, 2 or 3. See above). For reason 1 and 2, there is no need to buy any options to offset any obligations and thus all values will be 0 for that leg. Right now, I do not intend to resell call options (see second bullet point under reason 2) on any shares. This is mostly to keep things simple. If I start doing that in the future, I will write an updated post about it.

Stock Leg (Sell)

• Stock ticker
• Company name
• Number of shares sold
  
• Price per share
• Total money received

Option Leg (Buy)

• Call Symbol
• Strike date
• Strike price
• Number of calls bough
  
• Total money spent

Transaction

• Total money in
  
• Initial Investment
• Net returns
  
• Percentage returns
• Annual percentage returns (Normalized returns over 365 days)

All of the prices will adhere to conservative view in terms of bid-ask spread. This means that a "buy" transaction will be recorded at "ask price" and a "sell" transaction will always be recorded at "bid price". In reality, an investor can do better than this by appropriately placing limit orders.

Al always, if you like any other fields to be added to this, please leave a comment or send an email.