Many traders these days are learning to trade options. The overall popularity has skyrocketed in the last 10 years and there isn't a day that goes by that I don't get at least one question on the topic. One strategy that is frequently talked about is the covered call, or the buy write. It is most frequently used, in my opinion because of the simplicity, and the many pro's versus con's. Most people grasp the concept really quickly and it's a great way to get started in options trading.

The concept is to simply sell calls above the current price of the stock that you own. If, for example you owned stock at $30 and sold calls at $35 this would be a covered call. Meaning you have stock to cover the short call that was sold. Now as long as the stock stays below $35 (in this example) then you have the bonus of keeping the credit, along with the stock which you already own. Where people get tripped up is when the stock price shoots up beyond the $35 number and goes "In the money". It is at this point that many new options traders begin to panic so today we will discuss how to know what to do with that In the money call option.

Well the first thing you can do is to simply wait to allow the shares to be called away from you. At this point you would make the difference between the strike price and your average cost, plus the credit you collected for selling the call in the first place. The confusion comes while the call is in the money but yet to be exercised. See during this point your platform P&L will show a nice gain on you shares but an increasing loss on your short calls. This usually causes the new option trader to panic and close the position or at the very least be confused as to how much money they have left to make.

The easiest thing you can do is to look at the corresponding put to the call you sold. Once the call goes in the money, the value of the put is how much money you have left to make on your covered call. By looking at this you can rest comfortably knowing you have money still to make and that the position as a whole is going to be profitable.