Mr. Kadavy has answered the following questions from readers that may be helpful to others. If you have a question, please use the "E-mail Me" button above. Answers will be provided by return e-mail and, if applicable to a broad cross-section of readers, will be posted to this page:
Q. Are there brokerage firms where a stop loss order can be placed both on shares of a stock and covered calls that have been written on them?
A. I am not a great believer in stop loss orders, so I have not actively researched this. I believe you should have such confidence in any stocks or ETFs you buy that you should not worry about short-term market fluctuations, making stop loss orders unnecessary. If you are actively watching your stocks and ETFs as you should and wish to exit a stock position, you should simply buy back the call option to close (you will always have a profit in the calls if the stock has declined after the options were written) and then sell the stock. I understand that there are now some brokers who will allow a stop loss to be placed on both your stock and call option positions together. I do not know which brokers will do this, so simply check with your current broker or those with which you may desire to do business.
Q. Let's say I have 1,000 shares of stock, half of which I bought at $50 and half at $20. I have written 5 call contracts covering 500 of these shares. If these calls are assigned at expiration, can I designate to my broker which shares should be exercised? I'd like to have the higher cost shares delivered so the capital gain will be less.
A. Yes. Many online brokerage accounts will let you designate specific shares online without even contacting your broker. If that is not available to you, just call your broker after closing on the last day of trading if your contracts expire in-the-money and let your broker know which lot of shares you want delivered.