in the money covered call option
hi Mark
On your web site you suggest that the higher the delta of an option, higher the percentage the option will
be exercised. That means if in the money option has 80 delta then option has 80% chance to be exercised and that means position has a 80% chance to win with fix profit. Is it true?
Please explain in detail how it works. I am a conservative trader.


Hello Ashok

1) Yes, it's true.

2) The delta of an option is a good estimate of the probability that it will be in the money when expiration arrives.

3) Thus, an option with an 80 delta finishes in the money about 80% of the time.

4) Options that finish in the money are exercised at expiration time, and if you wrote a covered call option, you can expect to receive an exercise notice. But there are exceptions. If the option is in the money by only a penny or two, there is a chance that the option owner will NOT exercise and you may not be assigned an exercise notice. But that's not a problem for you. You still own the stock and can sell it when the market opens next Monday (or write another covered call option).

5) Yes, that means there is an 80% chance to win and earn the 'fixed profit.' But, You can have a winning trade more often than that. For example, if you buy 100 shares of XYZ @ 32 and sell a call with a strike price of 30, if the stock is 29.90 at expiration time - you will have a profit AND the option will expire worthless. This profit will be a bit less ($10) than if the call option were exercised, but it's still a profit for you.

6) Being a conservative trader, covered call writing is a reasonable strategy to follow, as long as you want to invest money in the stock market.

Best regards,