Got assigned on call options

blueraincap

blueraincap

I am short some NIO 18-strike call options (name at $18.7) expiring next week and today got assigned 15 before the big CPI print.

It is a non-dividend paying stock with high realized vol, so material insurance value still remains.

It is never optimal to early exercise a positive-carry stock, letting alone it is not yet deep ITM; why did you do it Joe?
 
blueraincap said:
I am short some NIO 18-strike call options (name at $18.7) expiring next week and today got assigned 15 before the big CPI print.

It is a non-dividend paying stock with high realized vol, so material insurance value still remains.

It is never optimal to early exercise a positive-carry stock, letting alone it is not yet deep ITM; why did you do it Joe?
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Maybe owner was margin called
 
Yeh, that doesn't make sense. If there was any extrinsic value left on those options (which there should have been since it still had a week to go and it is near the money), it would have made more sense to simply sell the options rather than exercise. If I was the broker and a client asked to exercise the options in that case, why not simply sell the options instead of exercising them, then buy shares on the open market and sell to the client at 18/share. Then pocket the difference as risk-free profit? So I don't see how that situation would happen. Sometimes I will let ITM calls expire ITM and get auto-exercised and then go short shares into the close right before expiration because it's cheaper to transact shares than options for my broker. I might do the same thing if the options were so deep ITM that there was no extrinsic value left -- delta hedge with shares and then exercise.
 
ET180 said:
Yeh, that doesn't make sense. If there was any extrinsic value left on those options...
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There was a lot, approx. 50 cents at the start of that day and close to $1 at the end (start of the day is relevant as the exercise could have been done anywhere in the day).

Indeed, enjoy the free money, this won't happen often!
 
blueraincap said:
I am short some NIO 18-strike call options (name at $18.7) expiring next week and today got assigned 15 before the big CPI print.

It is a non-dividend paying stock with high realized vol, so material insurance value still remains.

It is never optimal to early exercise a positive-carry stock, letting alone it is not yet deep ITM; why did you do it Joe?
More...

Wait a minute, the strike on the call option is $18 and yet somebody exercised the call option against you when the underlying is only at $15???? I think whoever exercised the option is a noob and probably wanted to sell a call to protect against a drop in price but bought a call instead and then exercised the call thinking it would protect them from a drop in the underlying's price. LOL That's the most probable explanation that I can think of. I wonder if we are going to get a question on here by somebody asking "I thought selling a call would protect me from a drop in price in the underlying stock but I exercised a call and I ended up paying a higher price than the underlying's price in the market, what gives??"

Like @traider said, enjoy the free money!! This kind of free fall doesn't come by often.
 
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