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SPY October Calls. Close, exercise or hold?
- Thread starter anthony
- Start date
You don't say what you paid for them but I'm assuming your sitting on a profit. There isn't much chance of them being called away because there is too much time premium left so it depends entirely on your outlook for the SPY going forward. If you think there is more room to the upside keep them or sell a farther out call to lock in some profit...the other option is to sell out now if you think they will go down in OCT...
Unless I have gone full retard, the dividend is irrelevant for those LONG calls.
Only those who are SHORT calls where the same strike+expiry put is worth LESS than the dividend will see their short calls exercised.
Being long, you should early exercise your calls if the corresponding puts are worth less than the divy, otherwise you are leaving money on the table. Fees, etc should be considered as well.
Net-net, you hold the decision being LONG the call. Nothing can happen if you do not request it to happen.
Again, I may be off today, it's been hectic, but I believe you are fine to hold if your reason for holding is still valid.
masterjaz
Only those who are SHORT calls where the same strike+expiry put is worth LESS than the dividend will see their short calls exercised.
Being long, you should early exercise your calls if the corresponding puts are worth less than the divy, otherwise you are leaving money on the table. Fees, etc should be considered as well.
Net-net, you hold the decision being LONG the call. Nothing can happen if you do not request it to happen.
Again, I may be off today, it's been hectic, but I believe you are fine to hold if your reason for holding is still valid.
masterjaz
Unless I have gone full retard, the dividend is irrelevant for those LONG calls.
Only those who are SHORT calls where the same strike+expiry put is worth LESS than the dividend will see their short calls exercised.
Being long, you should early exercise your calls if the corresponding puts are worth less than the divy, otherwise you are leaving money on the table. Fees, etc should be considered as well.
Net-net, you hold the decision being LONG the call. Nothing can happen if you do not request it to happen.
Again, I may be off today, it's been hectic, but I believe you are fine to hold if your reason for holding is still valid.
masterjaz
So I was only half-tard on that one, and did not read the title of the thread and see you were asking about exercising not rolling. I have a sell side option bias.
Anyways, only the 199 Oct3 call should be exercised and it is only nominally worth it.
SPY 201.76 @ 15:42 shows 199 Oct3 puts at 0.89x0.91, so you would be leaving approx 0.03 to 0.05 on the table. My guess is exercise fees/transaction fees negate any PnL boost.
But yes, assuming you have the acct capital, you should exercise any LONG call if the corresponding put is LESS than the dividend.
Hope I was remotely helpful, but probably not...
To add to masterjaz's advice, remember if you exercise your long call to get the dividend, you will now have long stock and will have much more risk. So you will actually need to purchase the same strike put, to have a synthetically similar position. If you can buy the put for less then the dividend, you will also need to include your cost of capital to the put price to see if the exercise makes sense.
A quick and easy evaluation is to calc the European style value using an option calculator. If the Euro value is below parity, then exercise the call - because exercising at parity is worth more to the holder. Costs should always be considered in any evaluation. It's a good point that you will then hold shares, so you may want to offset the exercise and possibly roll up and/or out the call - if you want to continue on.
There are borderline cases, where you don't have to exercise, but you may want to consider a little time decay in your evaluation of these - as well as costs.
There are borderline cases, where you don't have to exercise, but you may want to consider a little time decay in your evaluation of these - as well as costs.