Hmm. I must admit I made an error in my calc because I assumed 100 short calls at strike 100 (and did another error: then PnL would be $-18075 and not $-8075).omg you are hilariously ignorant
Long stock at 100 (1000 sh) and short 10 calls at 105 strike for 5.
As rmorse said, if he gets assigned on the calls (his shares are taken away), he receives 105 * 100 * 10 = 105,000
He originally paid 100,000 for the shares, and received 5,000 for the calls.
Net P/L = 105,000 + 5,000 - 100,000 = 10,000
And nowhere a strike of 105 was mentioned, so I'll do my calc again with the corrected nbr of option contracts (10) and keep strike 100:
PnL of the stockpos: $5k
PnL of the optionpos: a loss of -146.15% of the rcvd credit of $5000: $-2307.50.
(for the -146.15% loss --> consult an options calculator: the option can't be "at parity" because it has about a further 5 months time value (of total 8 months I used; ok, should be 9 months till Jan 2017), even when after the first 3 months its premium is 0 due to the massive change in the underlying; remind that this is a short option).
Net PnL: +2692.50
But this is a different situation: option plus stock, but the discussion was about option only, and then about volatility change.
So, in short: I stand by what I said: with options alone, an early assignment means that one only can lose.
But as said it is a different topic as volatility change is not involved in any way, but should be if one follows the discussion.
Btw, your calc above isn't correct as well:
how can he make $5k with options when the option was short?
To summarize it: IMO we all three made errors in our calculations, not a good sign for any of us, IMO
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