It also could have been something like the 170-175 May 18 call spread. That would be deep enough ITM to get exercised for a dividend (even the Jun170c was).
Explain how it went wrong?
- Thread starter res123
- Start date
Most likely, in your credit call spread, your short call leg got ITM and was exercised against you given how much AAPL's price appreciated and you got assigned. Since you already own some shares of AAPL so those shares were sold to fulfill your obligation as an option writer. Since your short call was for more shares of AAPL than you own so after selling all your existing AAPL shares, you went into a short-sale position. Check your statements or trading history and you will see all of the transactions that happened.
There is nothing you can do to rectify it now as everything happened correctly. All you can do is try to profit from this situation. Since you are short in the stock now, 3 things you can do:
1. Wait until the share price to drop and close out your position.
2. Short some puts with strike that's less than the price that your stock was shorted at. If the price goes up, then you would pocket all the premiums from shorting the put. If the price goes down hopefully low enough, then you are going to get assigned again and have your stock bought back.
3. Buy some calls to hedge.
You can do all 3 or any combination of the 3 but no matter what you do, set up a SL on the stock so when the price rises too much you are going to SL out of it and not lose too much.
Good luck!
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Thanks all for your responses. Some of this is above my head and I will get specific details and see if you can help me out.
I owned 51 shares of AAPL. It now shows that I am 49 short. As my owned shares were sold, along with 49 additional shares.
AAPL 05/18/2018 172.5/177.5 Call Spread. The short call was certainly assigned, The 177.5C is still open showing a profit. Should I close this position?
I do NOT want to be short AAPL. And I do not have the funds to buy 49 Shares. What's the best way to exit this without losing additional money as I fully expect AAPL to continue to appreciate.
I owned 51 shares of AAPL. It now shows that I am 49 short. As my owned shares were sold, along with 49 additional shares.
AAPL 05/18/2018 172.5/177.5 Call Spread. The short call was certainly assigned, The 177.5C is still open showing a profit. Should I close this position?
I do NOT want to be short AAPL. And I do not have the funds to buy 49 Shares. What's the best way to exit this without losing additional money as I fully expect AAPL to continue to appreciate.
Please explain this: I noticed I now have cash available presumably from the sale of my stock. Did you mean to say buy the stock that I am currently short on meaning use the cash of the sale of my stock to buy back the shares that I am short?
I am also left with a long call option on AAPL which is now profitable whereas the short position got assigned as explained in my recent posit.
Ah, here's what happened:
...and I'm guessing that you didn't check your account on Friday, which is why you posted this on a Saturday, which is why others thought you got assigned through auto-exercise...
Ok, you took a credit for the $5 spread--I'm guessing when it was out of the money. For the sake of argument, let's say you took $2 on it for a $200 credit less commissions. When AAPL released earnings, this position became almost a $500 liability. So you lost that on the position--pretty much all of it on the May 1-2 gap up. Take the loss and move on.
Parity for the 172.5-177.5 is within the spread as of Friday's close....and I suspect this was true on Thursday's close--but a moot point. The calls definitely had less intrinsic value than the dividend. On Friday, the stock went Ex-Dividend. When American style options go deep in the money, they lose the value of the dividend overnight because on Thursday they can be exercised for an equity that entitles one to a dividend and on Friday they cannot. So you left another $73 on the table by not exercising your options.
So, all told, you're out about $375 plus commissions. That's a really cheap tuition to learn those two lessons. So learn: 1. It's f'ing risky to hold short options through earnings. 2. Don't forget to exercise / sell / be ready for assignment on ex-div day. You'll either be scared off of options for good, or these two lessons will inform every future options trade you take. Either way, you probably came out ahead on this trade.
As for fixing your position figure out which is cheapest with you broker:
1. Do nothing (auto-exercise).
2. Exercise with your broker. (This might be a good idea to learn the process should you ever find your self with a long deep-ITM call before ex-div day again)
3. Enter an order to buy 100 shares and sell your 177.5 call with a price of 177.40 (this is probably the cheapest--especially if you broker charges for exercising).
All 3 will get you back to 51 shares long with your account in the same place it was minus the loss on the credit spread...and without your dividend.
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Ok since you don't have the funds to buy back the 49 shares and if you ABSOLUTELY do not want to be short in AAPL, then you would have no choice but to close your profitable long call position to get the funds to buy back the shares. What you can do is hold all shares or hold some shares and some calls depending on how fast you think AAPL share price is going up next week.
1. If you think AAPL share price is not going to go up faster or as fast next week, then you should close your entire call positions which is ITM right now at a profit to close out the short stock positions and use the remaining to be long in AAPL shares.
2. If you think the AAPL share price is not only going to go up but go up FASTER than this week, then what you can do is close just enough of the call position to buy back the shares and still keep some of the calls to have them appreciate more and then sell them before their expiration to get more funds because if the AAPL share price goes up faster next week, the option value is going to go up faster than the share price but you MUST remember to sell them BEFORE its expiration date. At the struck of midnight next Thursday, all the extra value is gone, everything reverts back to just the difference between the strike and the market value.
The only thing you need to be cautious about option 2 is that IF AAPL doesn't appreciate fast enough next week, your call options may lose value or may not continue to gain value then it would've been better to have sold all call options and bought the shares instead.
Good luck!
You got assigned because of the dividend... Apple @188.50 means all ITM calls below 185-ish are early exercise calls before ex-dividend. Dividend was 0.73 cents.
If you still hold an ITM call that should have been exercised, depending on the equivalent put value, you would lose up to 73 cents...
Looking at that 177.50 call, the put value is currently 10 cents... so you've lost 0.63 cents due to you not exercising your call. MM's will say "thank you very much for your money @res123".
Rookie mistake, not knowing how the world works...
If you still hold an ITM call that should have been exercised, depending on the equivalent put value, you would lose up to 73 cents...
Looking at that 177.50 call, the put value is currently 10 cents... so you've lost 0.63 cents due to you not exercising your call. MM's will say "thank you very much for your money @res123".
Rookie mistake, not knowing how the world works...
Not all stocks go down by exactly the amount of dividend ex-dividend though. Some stocks actually go up or continue to go up even ex-dividend depending on how strong that stock is. So that call option that @res123 holds can still continue to go up in value, one never knows. Not exercising might not be the worst thing.
For the put, I don't know how that plays into valuating that call. But if @res123 is long in a put also since he did an iron condor, that put will increase in value if the stock does indeed drops by the amount of the dividend while ex-dividend.
So either way, he's covered. He just needs to monitor his positions very carefully next week and do everything before his option(s) expire(s).
You can still short options over earnings but you just have to be REALLY REALLY REALLY careful. Go as far as OTM as you can (so even if there is an dividend date, you can't be exercised against) and do LOTS LOTS LOTS LOTS of analysis to figure out where the stock could go after earnings as if you are investing in the stocks yourself. And try not to do both ways, both calls AND a put, do either call OR a put unless you know for certain that the stock is not going to move much during earnings.
He was is a call spread... and got assigned in his short leg. So he is not covered.... he lost 63 cents... will only make that back when the stock drops, since he's short delta's now... short 100 (by being assigned in his call) and long 90ish...
I refer to the put, since you have to look at put call parity. During dividends, if you hold an ITM call... if you exercise, you get the dividend but give up the remaining time premium... which is the same time premium as in the put (P/C-parity). So in reverse, if you don't exercise... you lose the dividend but gain the remaining time premium.
In OP's case. Dividend was 73 cent. The 77,50 put is currently about 10 cents, which is the remaining time premium... so he's lost 63 cent due to him not exercising.
It's the way it works... I can explain further if you like.. but now I'm going home for dinner.