Understanding Brokerage Statements for Covered Call Writing: A Real-Life Example with Energy Select Sector SPDR ETF (NYSE: XLE) – July 19, 2021
Our covered call writing and put-selling broker statements can be confusing when starting our option-selling careers. This article will detail the first 3 steps of our covered call trades (stock purchase, option sale and buy-to-close limit order) using XLE as reflected in one of my broker accounts.
Purchase of shares to initiate a covered position
500 shares were bought at $43.74 per-share. This puts us in a “covered” or protected position… we know our cost-basis. The trade was entered as a market order, day only trade.
Sell the call options to complete the initial covered call trade and set the 20% BTC limit order
- 5 call contracts were sold at $1.06 and the order was filled
- Immediately, after entering the trade, a buy-to-close limit order was set at $0.20 (20% of $1.06)
- The last trade was set at GTC (good until cancelled) and is currently “open”
Portfolio position after the covered call trade is executed
- 500 shares were purchased at a cost-basis of $21,870.00
- 5 call contracts were sold (negative, reflecting the short position)
- Total cash generated is $526.00 (also negative reflecting an open short sale)
- The $526.00 is cash in our brokerage account and available for trading
Discussion
Covered call writing and put-selling are strategies that, once mastered, will allow us the opportunity to beat the market on a consistent basis. Understanding the accounting procedures of a broker statements is also critical to our overall success.
Author: Alan Ellman