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No. of Recommendations: 2
1. On that date the seller of the call has to sell it to you for $500 per share.
2. You can decide at that time weather to buy it or not.
3. The seller must think TESLA is going to crash, since the share price is MUCH higher than that now


1 & 2 are almost right, you have the right to buy and the seller has the obligation to sell at any time until expiration. This is how American options work. European options give the right only at (not until) the expiration date.

3. is wrong because you have no idea why the seller would want to sell.

TSLA remains above $500, do the math!

Description Date
Buy TSLA -793.31
Sell call 379.05
Cost 01/20/21 -414.26
Called 500.00
Net 03/18/22 85.74
Percent 20.70%
CAGR 18.13%

If TSLA goes to the Moon the seller has a CAGR of 18.13%, not bad if you can get it. At $414.26 the seller breaks even.

But the seller can buy back the option at any time. At a $500 strike price the delta of the option is .85. If TSLA goes up $10 the call goes up $8.50.

Buy back a month later when TSLA is up $10, do the math!

Date Covered call TSLA
Trade 01/30/2021 -414.26 -793.31
Close position 02/28/2021 422.76 803.31
Net 8.50 10.00
Percent 2.05 1.26
CAGR 29.13% 17.08%

My math is not accurate because I'm using the midpoint of the buy and ask prices. The actual prices are more likely to be closer to bid when selling and closer to ask when buying back.

I just wanted to illustrate what the seller might be thinking. The seller has alternatives to waiting for expiration.

Denny Schlesinger
a call option seller

TSLA option chains: https://www.cboe.com/delayed_quotes/tsla/quote_table
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