If you are long a call and the call is in the money, unless you specify not to exercise it or sold it, the call would be automatically exercised for you due to the rule by Option Council and you will get the stock. It won't expire worthless if it's ITM.
Can someone help me with my first covered call?
- Thread starter kmiklas
- Start date
If you are long a call and the call is in the money, unless you specify not to exercise it or sold it, the call would be automatically exercised for you due to the rule by Option Council and you will get the stock. It won't expire worthless if it's ITM.
According to Option Council, close to 30% of the options are exercised so I guess your calls were among the 30%.
Yes. Dividends is when option holders exercise early if the dividends is large enough. The auto-exercise upon expiration for ITM options is an Option Council rule.
So, I feel like one of us is severely missing something here. you said this:
"They were probably called away because of the dividend and it being large enough cuz that's the only time when exercising is worth it otherwise they would've just sold the calls to close the position.
But essentially every call that is in the money at the end will be exercised, with the stock called away, correct? That would seem to make the quoted statement very likely not true, no? I must be not understanding some lingo here.
Robert Morse
Sponsor
Saltynuts,
Before expiration, there can be a benefit to the buyer of an ITM call to exercise early if:
- The stock is hard to borrow and they have hedged the ITM call option with short stock and the borrow cost is too high or there is a pending buy-in from failure to deliver the short stock.
- The stock has a dividend that will go X-dividend the next day and the value of the dividend exceeds the value of the put on the same strike including the cost to carry the stock vs the call.
- The call is so far ITM that there is no liquidity in the market place to exit. You can then short the stock and exercise the options in order to get a fair price of parity + fees.
???
Question for you sir: Since my options were ITM if they won't call my underlying who paid the owner of those ITM options since I just let mine expired?
If your options were ITM and you were a seller, you would've been assigned, very often. I don't know what you mean by "they won't call my underlying". If you own the underlying, they will ALWAYS call your underlying away, no exception upon assignment. Only when you don't have enough shares of underlying to satisfy your contract obligation or you don't own the underlying at all, then you would be short of the underlying upon assignment.
I have heard of instances of sellers though getting lucked out of been assigned even when their options were ITM and they didn't close out their option positions but they were rare. If you happened to be not assigned, chances are the ITM option holders might have 1) elected still not to exercise or 2) sold their options for a profit. So if they don't exercise, then they won't get paid. In the case that they sold their options, well, whoever bought their options would've paid them.
I hope that answered your questions.
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I am still puzzled.
On 1. why would he give up a sure profit? On 2. whoever bought, why not exercise for profit?