How to Sell a UPL Call Option
UPL is the stock symbol for Ultra Petroleum Corporation, a company traded on the New York Stock Exchange. Call options on UPL give the option buyer the right to buy UPL stock at a preset price. A call option seller receives a premium for selling the option and must deliver the stock if the option is exercised. Sell UPL call options if you believe the stock price will decline and the call options are overpriced.
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Instructions
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Apply for a stock brokerage account with margin capability and option trading authorization if you do not already have an account. The ability to buy and sell options requires additional financial disclosures to the broker. The broker's compliance department will review your trading experience and financial assets and assign a trading authorization level from 1 to 5. To sell call options without owning the underlying stock requires at least level 4 options trading authorization.
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Fund the account with enough money to cover the required margin deposits for the call options you will sell with a minimum deposit of $2,000 to meet the margin account equity rules. The approximate margin deposit required to sell a call is 20 percent of the share price times 100. For example, in early May 2011, UPL was selling for $50 per share. The margin deposit to sell one UPL call would be about $1,000.
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Select the call options on UPL to sell. Call options are available in a range of strike prices and expiration dates. The goal when selling calls is to have the share price of UPL below the strike price of the option when the expiration date arrives. In this example, with UPL at $50, call options with a strike price of $50 and expiration in four months are selected.
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Place the order to sell the selected UPL call options using the broker's online option trading screen. You select the number of call option contracts to sell with a minimum of one contract. The premium received will be 100 times the quoted price. For example, the example call has a premium of $4, so $400 will be credited to your account. The initial margin amount for this trade is $1,000 plus the $400 in premium, so $1,400 will be restricted in the account until the sold call option position is sold.
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Monitor the value of UPL and the call option price. Close out the trade by buying back the call option if the call price falls significantly or the value of UPL starts to increase, pushing the trade to a losing position.
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Tips & Warnings
Selling call options without owning shares of the underlying stock is called selling uncovered or "naked" options. The buyer of the call option has the right to exercise the option and buy 100 shares of stock, in this case UPL, at the strike price of the call. The call option seller must deliver the stock and accept the strike price as the amount of payment.
Selling call options is a high-risk strategy to generate income. The maximum profit is the premium received from selling the call options. Losses can be unlimited. For each $1 UPL rises above the call strike price, the options lose $100 per contract.
