Ive a question that has me baffled and cant seem to get this answered adequately.
When writing a Covered Call (Buy/Write) In the Money (ITM) the premium is made up of Intrinsic Value & Time Value.
Supposedly the Intrinsic Value is Never Ever profit.
I can see how that is the case when exercised but assume the following scenario.
Share Price $110, Strike 100, Premium $11 (IV $10 + $1 Time value)
Ive bought the shares at $110 and earned $11 per share effectively taking my purchase price to $99.
If I dont get exercised and the Share Price at Option Expiry is now $105, What is my overall profit?
Just the overall $1 per share (time value)?? But if thats the case where did the other $5 go, ie the difference between the current share price ($105) and the Strike (100)
I just cant figure out where the Intrinsic Value money goes if youre NOT exercised and have been thinking everytime you do a covered call (buy/write) on the same shares ITM, you effectively keep lowering your share purchase price.
Id love if someone could shed some light on this.