Assignment Question

Discussion in 'Options' started by marcoPolo21, Sep 20, 2012.

  1. A hypothetical:

    I buy 100 shares of ABC for $20.00, and I Sell 1 Call contract, 25.00 Strike
    [let's say $2.50 premium; I don't think it matters here]

    At Expiration the last print is $30.00
    I'm assigned away my 100 shares,
    but what price do I get - exactly $30, or some other amount ?

  2. You sold them at $25.
    You made $5 for the $5 run from 20 to 25,.... plus you made another $2.50 for the call premium.
    Doesn't matter how much higher the stock rises above $25.
    You capped your run at $25, in return for the guanteed call premium.
    If the stock remains flat or drops instead of rises, you will be happy, knowing at least you earned that $2.50 premium during the length of the contract.

    The closer you let the stock get to 25 before writting the call, the more you will make.
    HOWEVER, the longer you wait to write the call, the lower the call credit will be, due to "time decay" (theta) of the option contract.
    So it's always a "blend" of timing WHEN is the best time for you to write the contract, relative to the time remaining on the contract. That blend will determine your option premium.
  3. Your shares are "called" away. That terminology is derived from the instrument, i.e. a call option. :cool:
  4. If you sold 1 call contract with a strike price of $25...then you get $25 ...(you don't get $30 ) + whatever amt you got as a premium