Explanation of the Interactive Brokers Order Screen for a Potential Covered Call

I own 100 shares of a stock, purchased at the current market price of £10 per share, totaling £1,000 (£10 × 100). I have not yet sold any options but am exploring the Interactive Brokers platform to understand the implications of selling a call option against these shares—a strategy known as a covered call. The option I am considering has a strike price of £6.40, which is below the current price of £10, making it a deep in-the-money (ITM) call if I proceed. Below is an explanation of the order screen displayed, with a particular focus on the Greeks and their relation to my stock.

Top Section: Order Details

This section outlines the details of the potential trade I am evaluating.

• Sell: I am considering selling a call option, which would obligate me to sell my shares at a specified price if the buyer exercises the option.
• 1: The trade involves 1 option contract, representing 100 shares.
• Mar21’25 640 Call:
  • Mar21’25: The option expires on March 21, 2025.
  • 640 Call: The strike price is £6.40 (the platform moves the decimal two places, so 640 = £6.40). This is the price at which the buyer could purchase my shares. Given the current price of £10, this is a deep ITM call.
• Prices:
  • Bid: 272.75: The highest price offered is £2.73 per share (272.75 ÷ 100 = £2.73). For 1 contract, I would receive £273.
  • Mid: 282.75: The midpoint price is £2.83 per share, or £283 for the contract.
  • Ask: 292.75: The lowest selling price is £2.93 per share, or £293 for the contract.
  • The option’s price reflects its intrinsic value (£10 – £6.40 = £3.60 per share, or £360 per contract) plus time value, though the bid price of £2.73 is below the intrinsic value, possibly due to market conditions.
• + Watchlist: A button to add the option to a watchlist.
• See Quote: A link for detailed pricing information.
• Clear: A button to reset the order.
• Add Stock Leg: I already own the shares. This button allows adding another trade component if needed.

Performance Profile

This section outlines the potential outcomes if I proceed with the trade.

• Max Loss: ∞ (Infinity): This is inaccurate for a covered call. My maximum loss occurs if the stock price falls to £0:
  • I paid £1,000 for the shares.
  • At £0, I lose £1,000, but I would keep the £273 premium.
  • Net loss: £1,000 – £273 = £727.
• Break Even: £9.14: This indicates the stock price at which I would neither profit nor lose. For a covered call, the break-even is my cost basis minus the premium per share:
  • Premium: £273 ÷ 100 = £2.73 per share.
  • Cost basis: £10 per share.
  • Break-even: £10 – £2.73 = £7.27 per share.
  • The displayed £9.14 does not align with my calculation of £7.27, suggesting a potential platform error. I will use £7.27 for accuracy.
• Max Return: 2,948: Corrected to £29.48 (2,948 ÷ 100). If executed:
  • I receive the £273 premium.
  • The option is exercised, so I sell my shares at £6.40 (£6.40 × 100 = £640).
  • Net outcome: £640 + £273 – £1,000 = -£87.
  • This indicates a loss of £87, not a profit of £29.48, suggesting the platform’s calculation may be incorrect.
• Graph: The bar illustrates profit/loss:
  • Red (left): Losses if the stock price falls below £7.27.
  • Green (right): Profit, capped at £6.40 per share.
  • The current price (£10) exceeds the strike price, but my upside would be limited, and I would face a loss.

Market Implied Probability of Profit: 41%

This indicates a 41% chance of profit and a 59% chance of loss. The platform may be accounting for the risk of the stock price falling below my break-even of £7.27.

Market Data

This section details additional metrics, rounded to two decimal places.

• Return/Risk:
  • Max Return: 2,948: Corrected to £29.48. My actual outcome would be a loss of £87.
  • Max Loss: ∞: My real maximum loss is £727.
  • SPX Delta: -0.159: Delta measures the option’s price change per £1 change in the stock price.
• Aggressiveness:
  • Break Even: 9.14: Should be £7.27.
  • Commission: 1.70: The fee is £1.70.
  • Commission%: 0.62: The commission as a percentage of the trade value.
• Margin Impact:
  • 1086.86: Corrected to £10.87 (1,086.86 ÷ 100). The amount required in my account.
  • Min Invest: -2946.63: Corrected to -£29.47 (-2,946.63 ÷ 100). This reflects the premium I would receive.

The Greeks

These metrics provide insight into how the option’s price may change in relation to my stock, which is currently priced at £10 per share. Since I am considering selling this deep ITM call option (strike £6.40), the Greeks help me understand the risks and dynamics of the trade.

• Delta: -1,075.828: Corrected to -10.76 (-1,075.828 ÷ 100, rounded to £10.76). Per share, this is -0.11 (-10.76 ÷ 100, rounded to 0.11). Delta measures how much the option’s price changes for a £1 change in my stock’s price. A negative delta is expected since I am selling a call option—if my stock’s price increases, the option becomes more valuable to the buyer, increasing my obligation as the seller. For a deep ITM call like this, the delta should be closer to -1 (e.g., -0.9), meaning the option’s price would decrease by nearly £1 for every £1 increase in my stock’s price. The displayed delta of -0.11 per share seems low, possibly due to a platform adjustment or a calculation specific to the position size. In practical terms, if my stock’s price rises from £10 to £11, the option’s price might increase by about £0.11 per share (based on this delta), increasing my potential loss as the seller.
• Gamma: -5.655: Gamma measures how much the delta changes for a £1 change in my stock’s price. A negative gamma indicates that as my stock’s price moves, the delta becomes more negative, increasing my exposure to price changes. For example, if my stock’s price rises from £10 to £11, the delta might change from -0.11 to a more negative value (e.g., -0.12 or lower), making the option’s price more sensitive to further increases in my stock’s price. This is a risk for me as the seller, as it amplifies the impact of price movements against my position. Since this is a deep ITM option, the gamma is relatively small, but it still indicates that my risk increases as the stock price moves.
• Theta: 1.100888: Corrected to 0.01 (1.100888 ÷ 100, rounded to 0.01). Theta measures the option’s price change per day as time passes, assuming all other factors remain constant. A positive theta of £0.01 per share means I would gain £0.01 per share each day (or £1 for the contract) as the option approaches expiration on March 21, 2025. This is beneficial for me as the seller because the option loses value over time, reducing the likelihood of it being exercised if the stock price were to drop. For my stock at £10, this theta indicates that time decay works in my favor, but since the option is deep ITM, the buyer is still likely to exercise unless the stock price falls significantly.

In relation to my stock, these Greeks highlight the dynamics of selling a deep ITM call. The low delta (-0.11) suggests the option’s price is less sensitive to small changes in my stock’s price than expected, but the negative gamma indicates increasing risk if the stock price rises further. The positive theta is advantageous, as time decay reduces the option’s value daily, potentially benefiting my position if the stock price declines closer to the strike price.

Summary of the Potential Trade

I am exploring a covered call by selling a call option with a strike price of £6.40 against 100 shares I own, purchased at £10 per share (£1,000 total). If executed, the premium received would be £273. Due to the deep ITM nature of the option, it is likely to be exercised, resulting in a sale of my shares at £6.40, yielding a net loss of £87. My break-even point is £7.27, and my maximum loss is £727 if the stock price falls to £0. The platform’s “Max Return” (£29.48) and “Break Even” (£9.14) appear incorrect. The trade would involve a £1.70 commission and a £10.87 margin requirement. The Greeks provide insight into the option’s sensitivity to my stock’s price changes, with delta indicating a modest price impact, gamma showing increasing risk with price movements, and theta highlighting the benefit of time decay.