Sure. I buy 1000 XYZ at 100 and sell 10 Jan 100 calls for $5.00. You do the other side. The stock moves up to 115 in three months. If you exercise your calls early, and I get assigned, I lock in my profit early, don't have to hold that position until expiration, releasing margin, and no longer have the risk of the stock dropping.
MTM only relates to ignoring unrealized gains as unrealized and booking them at their EOD market prices. For tax purposes, this is done on December 31st.
Huh? You're telling me that PNL is irrelevant? That it has no impact on the position itself? I have a feeling that your broker might have a slightly different view of how things work...
You would make a net loss of about $8075 Resulting from a -146.15% loss in the options position. The gains of the stock aren't enough to cover that huge options loss... But you have not mentioned any vola changes which was the main dispute. So, in above calc I used and kept the same HV=20%.
At 115, if the calls are trading at parity, I'm up $5000. If the calls are trading at parity, the IVol is not relevant. The Vega on these DITM options is very low.
You never asked a question about "change in (historical) volatility". You focused on american vs European style options and of you are short or long. And you get me worried when you say, "As said my calc shows a net loss $8075." It is not possible for me to lose money if the stock is up 15 points and I have a buy write. And, it not possible for you to lose more than 5 points if the stock is up and you have the synthetic put.
No, in nearly all of my postings in this thread you can find also "volatility changes" mentioned together with the others. Or, are some people perhaps really trying to predict the IV of each (or some) strike(s), instead of the HV of the underlying? I would assume vola change means change in HV. Why are you worried? As said, the calc used a const HV.
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