Covered Call

Covered Call Opening

High-level summary of the Toll Booth covered call position opening process.

Top-level checks before doing anything

Buying power gate: If not in test mode, and the account is not a retirement account, and options buying power is under minimum threshold, the process stops with a risk message.
Global “ready to place opening orders” flag: If the user isn’t currently allowed to place opening orders, the process stops and reports the reason.

Per-instrument steps for “covered call”

The user must be present, allowed to place opening orders, and approved to use this instrument type. If any of these fail, the process stops for this instrument.
Throttles used for other instruments (like minimum long-opening buying power or low options buying power) are intentionally relaxed for covered calls so that hedging can still occur.
Candidates are the options marked “ready for covered call” where the account holds at least 100 shares of the underlying. If none exist, the process stops for this instrument.

First eligible option (first loop iteration only)

If it’s after normal market hours, it stops to avoid placing orders that would carry to the next day.
If there’s no associated trade object yet, it is created and refreshed.
If the instrument’s daily open limit has been reached, it stops for this instrument.

Per-option opener specifics for covered calls

Because this is not a portfolio-margin account, the underlying position must exist and have at least 100 shares. If not, it stops with a message indicating insufficient shares.
If the option data is stale, it is refreshed before proceeding.

How the “trade resource” is created

A helper builds a “covered call trade resource” by scanning the underlying’s call option chains, per expiration and per strike, and computing pricing and viability. It uses two pricing stages:

Short-call open pricing stage (generic short option basics):
- Validates expected move and that the chain looks standard.
- Sets directional expected move and reference underlying prices.
- Sets the option mark, computes the maximum loss for a one-leg short, and derives expected open/close prices.
- Ensures maximum loss isn’t negative; sets maximum profit; computes profit-to-risk metrics; estimates probabilities and expected win/loss outcomes.
- Assigns a “viability score” from factors like implied volatility, theta, bid/ask tightness, and mark-to-last spread so chains can be ranked.
Covered-call-specific open pricing stage:
- Sets maximum loss to zero because the long shares cap the risk.
- Calculates strike-minus-underlying gap, long-share carrying cost (including interest and any dividend), and then sets the opening limit price from mark with a small randomization to avoid exact price collisions.
- Computes return-on-investment for selling the call against shares and expected return to expiration.
- Heavily weights the viability score by expected return, mark size, and call delta. Penalizes chains with too-low expected returns or very small mark to avoid unproductive calls.
- Low‑volatility grace — when implied volatility is below its 5‑day moving average or the peer‑average expected return is very low, negative penalties are scaled and a minimum viability floor is enforced so low‑vol underlyings are not fully blocked.

The helper ranks candidates by viability and returns a covered call trade resource built from the best chain. If no chain meets minimum viability, it returns a human-readable reason.

Open-readiness checks the trade resource must pass

These run in layers. Each layer can return a human-readable reason to stop; otherwise the process continues.

1) Base instrument open-ready (generic safety checks)

The resource must be complete: user, account, symbol, and an opening instruction are present.
The trade exists and isn’t flagged “do not open.”
The symbol’s quote isn’t flagged “do not open.”
A valid opening price is present, and it doesn’t match a conflicting active closing order on the same trade.
The system can determine available buying power.
If all pass, it marks the base instrument as “ready.”

2) Base option open-ready (option-specific safety)

The option record is present and healthy, strike is populated, and the proposed price is reasonable relative to the strike.
The long/short direction of the resource aligns with the trade’s position direction.
Calls aren’t being opened for put instruments or vice versa.
There’s no in-progress rolling close operation on the same trade.
If all pass, it marks the base option as “ready.”

3) Covered call open-ready (covered-call-specific safety)

User available buying power context is valid, and the account’s overall upside exposure is within limits.
For new users, limit to one covered-call opening order per day across all underlyings until acceptance (first fill or any active open age ≥ 2 hours).
At most one covered call is opened per day for the same underlying; if a covered call already filled today, this blocks.
The trade and option are loaded and healthy; strike and price basis are valid; OTC quotes are blocked.
Neither the trade nor its quote is flagged “do not open.”
There is enough stock to cover at least one call (no negative or zero available covered-call quantity).
Delta and net-delta balance checks prevent pushing the underlying too negative.
The projected upside risk and net upside exposure meet minimum requirements; if the underlying’s expected upward range is already negative in a way that makes the hedge counterproductive, it blocks.
Per-underlying caps on total short-call quantity are enforced; an already-active opening short-call order for this underlying blocks additional ones.
If all pass, it marks the covered call as “ready.”

Order construction and order-level checks

If the trade resource is ready, the system builds a simple, single-leg order to sell to open one covered call. Quantity is typically one for conservative sizing and reliable fills.
The order then passes through two additional checks:

Order-level readiness:

Validates the limit price for a non market order and that the proposed “open spread” is realistic.
Ensures the order’s computed mark is sensible relative to a calculated mark to catch stale or erroneous inputs.
Blocks if a matching opposite order is already working elsewhere, or if this would be a duplicate order for the same user.
Confirms the order actually has legs and that the whole leg collection is ready.
Marks the full order as “ready” if there are no issues.

Order-leg readiness (non rolling legs):

Each leg must have a trade and a numeric, positive quantity.
Closing legs must respect position quantity and avoid spawning redundant closing orders.
The asset type must be an option (safety check).

If both the order and its leg are ready, the system submits the order. It then deducts the projected risk amount (maximum loss × quantity) from the local options buying power budget used during the run so subsequent decisions consider that consumption. A successful placement increments the instrument’s open count.

Summaries of the ordering pipelines

Base instrument is-not-open-ready:

Confirms the resource is complete (user, account, symbol, instruction).
Rejects if the trade is missing, is flagged do-not-open, or if the quote is flagged do-not-open.
Requires a valid opening price and no conflict with an active closing order on the same trade.
Requires available buying power to be known.
If all pass, marks it ready.

Base option is-not-open-ready:

Confirms the option’s data is intact, strike is set, and price is reasonable vs. strike.
Disallows direction mismatches (e.g., short resource vs. long position) and call/put mismatches.
Rejects if there’s an active rolling close process on the same trade.
If all pass, marks it ready.

Covered call is-not-open-ready:

Requires valid buying power context and that overall upside exposure is within limits.
For new users, limit to one covered-call opening order per day across all underlyings until acceptance (first fill or any active open age ≥ 2 hours).
Enforces “at most one per day” per underlying and blocks if an active open order already exists for the same underlying.
Validates trade/option/strike/price, blocks OTC, honors “do not open.”
Requires enough shares to cover; performs delta balance checks and upside risk/return minimums.
Applies per-underlying short-call caps.
If all pass, marks it ready.

Order resource is-not-ready:

Validates price realism, spread realism, and mark sanity.
Avoids matched or duplicate orders, requires non-empty and ready leg set.
If all pass, marks the order ready.

Order leg is-not-ready (non rolling):

Requires leg/trade presence, positive numeric quantity, and correct closing behavior vs. position.
Avoids redundant closing legs and enforces that the leg is an option.
If all pass, the leg is ready.

Outcome

If every check succeeds for the first eligible covered call, a one lot covered call open order is submitted with a conservative, viability‑informed price. If any step fails, a human readable reason is returned and the process moves on (in general) to other candidates or instruments, but only the first iteration is described here.

Process flow diagram

Visual summary of the covered call opening workflow described on this page.

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flowchart TB
  A([Start]) --> T1[Top-level checks]
  T1 -->|Fail| OUT[Stop: buying power or not allowed]
  T1 -->|Pass| I1[Per-instrument: covered call]
  I1 -->|Fail| OUT
  I1 -->|Pass| F1[First eligible option - first loop iteration only]
  F1 -->|After 3pm and not test| OUT
  F1 -->|Daily open limit reached| OUT
  F1 -->|Pass| O1[Per-option opener specifics]
  O1 --> O1b{Option data stale?}
  O1b -->|Yes| O1c[Refresh option]
  O1b -->|No| TR1[Build trade resource]
  O1c --> TR1

  subgraph TR[Trade resource creation]
    TR1 --> P1[Short-call open pricing stage]
    P1 --> P2[Covered-call specific pricing]
    P2 --> TR2{Viable chain?}
  end

  TR2 -->|No| OUT
  TR2 -->|Yes| BI[1 Base instrument ready]
  BI -->|Fail| OUT
  BI --> BO[2 Base option ready]
  BO -->|Fail| OUT
  BO --> CC[3 Covered call ready]
  CC -->|Fail| OUT
  CC --> OK[Trade resource ready]

  OK --> OC[Build 1-leg sell-to-open order]
  OC --> ORC[Order-level readiness checks]
  ORC -->|Fail| OUT
  ORC --> LRC[Order-leg readiness - non-rolling]
  LRC -->|Fail| OUT
  LRC --> S[Submit order]
  S --> BP[Deduct projected risk from local options buying power]
  BP --> INC[Increment instrument open count]
  INC --> DONE([Outcome: one-lot order submitted])

  OUT --> NEXT([Outcome: human-readable reason; consider other candidates])

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  class A,T1,I1,F1,O1,O1c,TR1,P1,P2,OK,OC,ORC,LRC,S,BP,INC,DONE,NEXT step;
  class O1b,TR2,BI,BO,CC gate;
  class OUT out;