Once you've sold a covered call, are you fully committed to keep the stock till expiration?

Question

Is there a way out if you need the cash for some reason?

Answer 1

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No.

If your broker has granted you permission to sell naked calls, and you have enough margin available, you can sell the stock and leave the calls naked, but that is probably a very bad idea because of the risk involved.

If you do not have permission to sell naked calls you will be required to close the call with a "buy to close" transaction before you will be allowed to sell the stock.

There is about a six page write up on covered calls at

http://www.cboe.com/Strategies/EquityOptions/CoveredCalls/Part1.aspx

if you are interested.

Answer 2

You should not sell the stock in such circumstances when you are not sure where the market is going. When you sold calls it looks like you are booking profit. In such cases when you are sure of the direction of the market then you can sell the stock. Then that is not the purpose of writing covered calls. It is to book the profit you gained on upward movement of the price and when you think it won't go further but downwards. What one usually does in such circumstances is to buy more shares with the premium got in writing calls when the price reach lower points and keep on doing it till you returns go higher and higher. This process is called 'portfolio insurence' and it is not done by anyone for ethical reasons since on expiration of options, futures and options on futures which fall on a same date market volatility will be very high which in turn can crash the market. This point is where the expiries happen of the three instruments used to be called the 'triple witching hour'. Now they don't do it anymore.
Then needing money instantly is another case. Usually people with speculative income only will invest in these instruments.

Answer 3

As it has been mentioned above, you do not have to hold the position to expiry, you can buy-to-close the call at any time.