I keep seeing this term everywhere but I am confused about what happens when buying to close a covered call.
I sold some last month and they are close to expiration. Should I buy them back or let them expire?
I want to understand the real steps here.
Buying to close means you’re reversing the call option you sold. You collected a premium, and now you’re paying to buy it back to exit the position. Check your calls before expiration. If they’re out of the money, let them expire worthless and keep that premium. If they’re in the money and you want to keep your shares, then go ahead and buy to close. It’s all about comparing the cost to close versus losing your shares. Keep it straightforward.
Buying to close means you’re buying back the call option you originally sold to exit the position early.
I made this mistake once with Apple shares. I sold calls that went deep in the money and panicked. Bought them back at a $400 loss instead of just letting my shares get called away.
Sometimes it’s better to just let expiration happen if you’re okay losing the shares.
When buying to close a covered call, you’re purchasing back the option you originally sold. This removes your duty to sell shares at the strike price.
Evaluate the cost to buy back against the potential loss of shares. If the option is only slightly in the money and more expensive to close than the loss you’d face, it’s better to let it expire.
This can be a trap if positions are closed too early, leading to avoidable losses.
Compare the buyback cost to your profit goal. Close early if premium decay accelerated and you captured 50-70% profit. Let expire worthless if out of money.
Closed my NVDA calls last week at 65% profit. It cost me $180 to buy back.