What does this mean regarding covered calls?

Question

"The short option value is the total value of your individual short option positions based on the ask price"
Also why is it being subtracted from my total balance if I sold covered calls. As you can tell Im a beginner!!!!

Thanks for replies! So if the options expire worthless or I get called, the debit balance will return to my account.

Answer 1

The answer is fairly simple. That is the liability against your assets. The premium you received is shown as an addition to you balance and the current value of the calls is shown as a debit agains your balance.

Answer 2

If the quoted sentence is coming from your broker's statement, it is correct. The fact that the total is subtracted from your balance is also correct.

The brokerage is calculating what it would cost, on an updated daily basis, to buy back and close your short positions. That's why they're using the ask price.

The total negative is being maintained because it affects your margin position, again on a daily basis, and the brokerage must keep track of this. At some point in time, prior to each option's expiration date, you will have to 1) close your position if in the money, 2) risk assignment if in the money - this means you will sell and deliver the underlying stock - or 3) let option expire if out of the money.

May I suggest you visit www.888options.com. This website is maintained by the Options Industry Council which also runs the clearing corporation. There are many great tutorials at this website for beginning and intermediate traders. Also books, pamphlets & brochures. OIC is not a brokerage house, has little or nothing to sell.

You might like to check out their regional live seminars, also, if you live in a large US city.

Also www.cboe.com. The granddaddy of options exchanges. Many tutorials for all levels, even a virtual trading model.

Answer 3

It seems you wrote covered calls and the options expired in the money. This means you are loosing money, for example if you wrote Sept IBM 184 for 2.50 and it expired at 188 that means your loss is $4. Initially your premium for writing would have been added to your account with the brokerage and later on your loss would have been subtracted.
If it was covered calls then your long stocks would have been sold with your permission and there won't be anything taken off your account, just the premium added to your account.