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This group is for brand new option traders. If you've never traded an option, this groups for you. Although... we would like to have some experienced option traders to help us through the more difficult trades. I will start this group with a simple covered call. This will be my first option trade, so the excitement starts right away. We will be using The Options Playbook as our guide. Everybody can ask all and any questions without the fear of looking like an idiot.

Active Since 10/21/08

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DarthVader

Member since: May 09
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VP, Engineering
Age: 40's
Canton, Michigan
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Posted June 11, 2009 (04:50PM)
I made my first options trade today in the form of a covered call.  As I was lazily monitoring this throughout the day, just to see what sort of things change, I noticed that the market value of the option displays as a negative.  So I just want to make sure that I understand why this is the case.

My assumption is that excluding the premium I received, the value is the current price of the option which I assume will change toward the positive as the expiration time approaches.  Is the correct?  would this negative value be the cost to me to buy back the call?

Thanks for putting (no pun) up with such a option newbie questions.
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Khai PA

Member since: Mar 09
5 Day -0.27%
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Age: 40's
Philadelphia, PA
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Posted June 13, 2009 (12:59AM)
Darth,

You are essentially correct.  The option value appears negative in your account because you are short the call position.  Assuming that the underlying stock price remains constant, the option value will approach zero over time.  Your short (negative) position will increase in value as it approaches zero.  The call value will never go positive in your account.  It can only approach zero from a more negative value to a less negative value over time, again, assuming the underlying stock price does not change.