Mark

As I continue to learn about options. I keep coming across this idea of doing combined transactions. An example is to buy a stock and sell a covered call simultaneously (as
opposed to buying a stock and the next day selling the covered call option).

Am I understanding this correctly? If it is possible to do this, do I need a special full service arrangement with my broker? I am currently using a discount online broker. Will I save on fees if I do a combined transaction? I would appreciate your thoughts on the mechanics of this.

Rgds

TR


Hello TR,

1) Yes you understand correctly and it's possible to make two transactions simultaneously. Why have you been waiting until the next day?
2) I always write covered calls this way and recommend that others do the same.
3) This transaction is referred to as a 'Buy-Write.' You buy stock and write the call at the same time.
4) Any broker can do this type of trade for you.
5) I know of no broker that gives a discount in commissions for a buy-write.
6) I cannot tell you how to enter the order because each broker has its own trading software. But, in general, you show the desired trade as

• Buy stock
• Sell (to open) calls
• Specify a net debit for the combo
  
• If you want to buy stock and pay $41.50 and sell a call for $1.95, the net debit is $39.55
• You do NOT care about the actual prices, all you care about is that the cost is $39.55 OR LESS per combination.
• If you pay $41.55 for stock and sell calls for $2.00, it makes no difference to you.

7) If you are not SURE how to enter the order, ask your broker.  All online brokers have someone to reply to general questions.
8) Combination orders (called SPREADS) are a good idea and you don't have to do a buy-write.  You can trade one option against another.

Mark

--
Mark D. Wolfinger
The Rookie's Guide to Options:
The Beginner's Handbook of Trading Equity Options