Naked calls and buying the stock later
"Has anyone done this before? I'm sure someone has, but it doesn't completely remove any price risk.   Suppose you buy it at 10 and it drops to 5? Then you've lost 5 on the stock and have no realized gain on the option (although you could buy back the option cheaply and exist the position). To completely remove price risk you have to delta hedge.  At ATM option generally has a delta of 50%, meaning that the value of the option changes 0.50 for every $1 change in the stock. The downside to delta hedging is you can spend a lot on transaction fees and employ a lot of ""buy high, sell low"" transactions with a highly volatile stock."
Yes. There are levels of option trading permission. For example, I've never set myself up for naked put writing.  But, if you already have the call spread, buying back the shorted call will leave you with a long call. This wouldn't be an issue. As long as you have the cash/margin to buy back that higher strike call. "Number 2 cannot occur. You can buy the call back and sell the stock, but the broker won't force that #2 choice. To trade options, you must have a margin account. No matter how high the stock goes, once ""in the money"" the option isn't going to rise faster, so your margin % is not an issue.  And your example is a bit troublesome to me. Why would a $120 strike call spike to $22 with only a month left? You've made the full $20 on the stock rise and given up any gain after that. That's all. The call owner may exercise at any time. Edit: @jaydles is right, there are circumstances where an option price can increase faster than the stock price. Options pricing generally follows the Black-Scholes model. Since the OP gave us the current stock price, option strike price, and time to expiration, and we know the risk free rate is <1%, you can use the calculator to change volatility. The number two scenario won't occur, however, because a covered call has no risk to the broker, they won't force you to buy the option back, and the option buyer has no motive to exercise it as the entire option value is time premium." If the call is in the money and you believe the reason for the price jump was an overreaction with a pullback on the horizon or you anticipate downward movement for other reasons, I will roll (sometimes for a strike closer to at the money) as long as the trade results in a net credit!   You already have the statistical edge trading covered calls over everyone who purchased stock at the same point in time.  This is because covered calls reduce your cost basis and increase your probability of profit. For people reading this who are not interested in the math behind probability of profit(POP) for covered calls, you should be aware of why POP is higher for covered calls (CC).  With CCs you win when the stock price stays the same, you win when it goes down slightly, you win when the stock goes up.  You have two more ways to win than someone who just buys stock, therefore a higher probability of making a buck! Another option: If your stock is going to be called at a loss, or the strike you want to roll to results in a net debit, or  your cash funds are short of owning 100x shares and you are familiar with the stock, try writing a naked put for the price you want to buy at.  At experation, if the naked put is exercised, your basis is reduced by the premium of the put you sold, and you can write a covered call against the stock you now own.  If it expires worthless you keep the premium.  This is also another way to increase your POP. "Whoa. These things are on two dimensions.  It's like burger and fries, you can also have chicken sandwich and fries, or burger and onion rings.   You can invest in an taxable brokerage account and/or an IRA.  And then, within each of those...  You can buy index funds and/or anything else. All 4 combinations are possible.  If someone says otherwise, take your money and run.  They are a shady financial ""advisor"" who is ripping you off by steering you only into products where they get a commission. Those products are more expensive because the commission comes out of your end.  Not to mention any names.  E.J.    If you want financial advice that is honest, find a financial advisor who you pay for his advice, and who doesn't sell products at all.  Or, just ask here.  But I would start by listening to Suze Orman, Dave Ramsey, whomever you prefer.  And read John Bogle's book.   They can tell you all about the difference between money market, bonds, stocks, managed mutual funds (ripoff!) and index funds. IRA accounts, Roth IRA accounts and taxable accounts are all brokerage accounts.  Within them, you can buy any security you want, including index funds.  The difference is taxation.  Suppose you earn $1000 and choose to invest it however  Later you withdraw it and it has grown to $3000.  Investing in a taxable account, you pay normal income tax on the $1000. When you later withdraw the $3000, you pay a tax on $2000 of income.  If you invested more than a year, it is taxed at a much lower ""capital gains"" tax rate.  With a traditional IRA account, you pay zero taxes on the initial $1000.  Later, when you take the money out, you pay normal income tax on the full $3000.  If you withdrew it before age 59-1/2, you also pay a 10% penalty ($300).  With a Roth IRA account, you pay normal income tax on the $1000.  When you withdraw the $3000 later, you pay NOTHING in taxes.  Provided you followed the rules.   You can invest in almost anything inside these accounts: Money market funds. Terrible return.  You won't keep up with the market.  Bonds.  Low return but usually quite safe.  Individual stocks.  Good luck.   Managed mutual funds.  You're paying some genius stock picker to select high performing stocks. He has a huge staff of researchers and  good social connections.  He also charges you 1.5% per year overhead as an ""expense ratio"", which is a total loss to you.  The fact is, he can usually pick stocks better than a monkey throwing darts.  But he's not 1.5% better!  Index funds.  These just shrug and buy every stock on the market.  There's no huge staff or genius manager, just some intern making small adjustments every week.  As such, the expense ratio is extremely small, like 0.1%.    If any of these investments pay dividends, you must pay taxes on them when they're issued, if you're not in an IRA account.  This problem gets fixed in ETF's.  Index ETF's.  These are index funds packaged to behave like stocks.  Dividends increase your stock's value instead of being paid out to you, which simplifies your taxes.  If you buy index funds outside of an IRA, use these.  Too many other options to get into here." "When you exercise your options, you come up with cash to buy the shares. This makes you an owner of the company for shares at the share price your options let you have. Ideally, your share price is at a significant discount to what the company is worth. Being a shareholder, you gain from any share price appreciation in a sale. The only thing the ""60-day window"" applies to is whether you come up with the cash to buy fast enough, or your shares get permanently deleted from the company finances, where everyone else potentially makes more, you make nothing. The sale of the company is based on whenever the sell finalizes, which is between your company and the acquiring company." You can execute block trades on the options market and get exercised for shares to create a very large position in Energy Transfer Partners LP without moving the stock market. You can then place limit sell orders, after selling directly into the market and keep an overhang of low priced shares (the technical analysis traders won't know what you specifically are doing, and will call this 'resistance'). If you hit nice even numbers (multiples of 5, multiples of 10) with your sell orders, you can exacerbate selling as many market participants will have their own stop loss orders at those numbers, causing other people to sell at lower and lower prices automatically, and simultaneously keep your massive ask in effect. If your position is bigger than the demand then you can keep a stock lower. The secondary market doesn't inherently affect a company in any way. But many companies have borrowed against the price of their shares, and if you get the share price low enough they can get suddenly margin called and be unable to service their existing debt. You will also lose a lot of money doing this, so you can also buy puts along the way or attempt to execute a collar to lower your own losses. The collar strategy is nice because it is unlikely that other traders and analysts will notice what you are doing, since there are calls, puts and share orders involved in creating it. One person may notice the block trade for the calls initially, but nobody will notice it is part of a larger strategy with multiple legs. With the share position, you may also be able to vote on some things, but that solely depends on the conditions of the shares. There is such a thing as a buy-write, which is buying a stock and writing a (covered) call simultaneously. But as far as I know brokers charge two commissions, one stock trade and one options trade so you're not going to save on commissions. By buying the call option, you are getting the benefit of purchasing the underlying shares (that is, if the shares go up in value, you make money), but transferring the risk of the shares reducing in value. This is more apparent when you are using the option to offset an explicit risk that you hold. For example, if you have a short position, you are at unlimited risk of the position going up in value. You could decide you only want to take the risk that it might rise to $X. In that case, you could buy a call option with $X strike price. Then you have transferred the risk that the position goes over $X to the counterpart, since, even if the shares are trading at $X+$Y you can close out the short position by purchasing the shares at $X, while the option counterpart will lose $Y.