Covered Call ITM/ Assignment Question

[OTM-Options]

The majority of expiring options follow that. The more illiquid and volatile the stock is, the less relevant the close is. Take GE vs PCLN. GE is around 27 and PLCN is around 1183. If GE closed at 27.01, the risk of not covering a hedge or cover is low over the weekend. For a position in PLCN, would you care about a few cents? If you had a spread on or stock vs your options, you would do what is right for your position. You would try to close or roll toward the end of the day but sometimes you can get it off or the stock moves a lot near the close.

Does that help?

Yes, absolutely. Very informative. Thank you Robert!

You just got bamboozled. No way does that post (#9) make sense to you, it sure doesn't to me.

 

[vopiscus]

OTM Options,

The way I understood it is thus. PCLN could easily move down by that (or more) after hours, thus making the call holder not want to take delivery of shares. A .01 change on PCLN is nothing. On GE it's still not a lot, but it's more. Volatility also plays a role. Pin risk always applies in these cases in the sense that while the broker-dealers will automatically exercise at .01 over, the client can also choose what to do, and that takes precedence.

OTM- Would you answer this question below differently than rmorse?

Would you still say that a "rule of thumb" is that if it's over by .01, it will be exercised? (I know that making a decision based on a "rule of thumb" is not wise, but just wondering in general.)

Thanks all

 

[OTM-Options]

OTM Options,

The way I understood it is thus. PCLN could easily move down by that (or more) after hours, thus making the call holder not want to take delivery of shares. A .01 change on PCLN is nothing. On GE it's still not a lot, but it's more. Volatility also plays a role. Pin risk always applies in these cases in the sense that while the broker-dealers will automatically exercise at .01 over, the client can also choose what to do, and that takes precedence.

I still don't get it. Why would a call holder reject the shares because of a dip during after hours?

IMO ....... If in doubt close them out - A classic ET thread everybody should read on expiring options: Margin Call on an IB IRA account (Need Suggestions)

That thread has made me more aware of my positions on expiry day.

OTM- Would you answer this question below differently than rmorse?

Would you still say that a "rule of thumb" is that if it's over by .01, it will be exercised? (I know that making a decision based on a "rule of thumb" is not wise, but just wondering in general.)

Thanks all

Yes ...... and in CBOE's own words "to protect the holder of an expiring in-the-money option by automatically exercising the option on behalf of the holder." CBOE Options Dictionary

And why would a holder of $0.01 ITM options accept the shares? The same reason why anybody would buy shares - they expect them to go up.

 

[i960]

I still don't get it. Why would a call holder reject the shares because of a dip during after hours?

Why pay for exercise to utilize the option to buy something at a price higher than it's selling for at that moment? They can likely go buy the same thing in after hours for a better price.