Naked Call

C

cigarno

If you write a naked call for a stock and the counter party wants to EXERCISE his option can you close your position buy selling the opton in the market OR you must deliver the stock?
 
You'll have to deliver the stock. Most exercise notices are given at night anyway so you'll have no opportunity to try and buy back the options before hand.
 
When anyone who is long the same option you sold exercises their contract you are at risk of being assigned. The particular counter party who was on the other side of your trade is not important.

When an exercise card is handed in to exercise any option anyone who is short that option has a random chance of being assigned. The OCC will select by random someone to receive the assignment notice it does not matter if your particular counter party exercised or not you are at risk. The good thing is that in general there is no good reason for anyone to exercise early other than a dividend situation.
 
If you must deliver the stock if you are assigned but you are short that stock, you get paid the strike price and then deliver the stock or vise verse?
 
Quote from xflat2186:

The good thing is that in general there is no good reason for anyone to exercise early other than a dividend situation.
More...

If we are only discussing equity options, traders will also exercise their 100 delta puts for cost of carry purposes.
 
Quote from cigarno:

If you must deliver the stock if you are assigned but you are short that stock, you get paid the strike price and then deliver the stock or vise verse?
More...
Make sure the stock is borrowable.
 
Quote from Jerkstore:

If we are only discussing equity options, traders will also exercise their 100 delta puts for cost of carry purposes.
More...

Look at your risk free rate, the cost to carry is almost nothing these days
 
still which comes first:
(1)- you get paid the strike price and then you deliver
(2)- you deliver the stock and then you get paid the strike
 
Quote from cigarno:

If you write a naked call for a stock and the counter party wants to EXERCISE his option can you close your position buy selling the opton in the market OR you must deliver the stock?
More...

You cannot close the position by selling. You were already short.

You cannot close the position by buying. You have no position to close. The assignment notice canceled the option.

Assignment notices are final.

Mark
 
You must log in or register to reply here.
Back
Top