Hello, I might have asked some simular question before but to be sure in this scenario, I wonder if the stock that I own gets assigned, - does that mean that the stock is sold from my account and I get the cash back like below example? 1. I own 100 shares of stock XYZ now trading at $20 with a total value of $2000 2. I sell 1 call at strike 20 for a credit: $0.50 Lets assume the option ends ITM where the stockprice is at: $22. We could say that it is likely that the option gets exercised in this case. Is the below true? : 1. I keep the entire $0.50 premium? 2. My 100 shares will dissapear from my account so I have no shares? 3. When my 100 shares dissapear, does this mean that they are sold in the account which now effectively means that I get the cash back for the stock: 100 shares * $20 = $2000? This means that I have: $2000 + $50 = $2050 in the account now in cash?
Correct. The appropriate term is: stocks you own get "called away". Assignment is more appropriate when you are made to initiate a new position. ie You had sold naked options.
Thanks alot for your confirmation. I will then keep this post as reference so I am sure to remember this
Remember This, Are Your Chicks Going To Hatch? OMG! We Are About To Crash Soon No One Knows It. I Hope That Scared You, It Should.
I was thinking of, if the stockprice ends ITM and just let us assume for the sake of the example that the stock doesn't get "called away". Do I still keep the $0.50 premium, with other words no matter what I will always keep the premium?
Yes you always keep the premium. That is your payment for services rendered. (ie you sold insurance to someone no different than GEICO keeping those premiums ever year regardless if you got into an accident or not)
Thanks, I see. That is true when I think I about it that way as insurance also. 3 more questions popped up. 1. If the shares gets assigned, do I pay commission for those shares. If I would have sold the stocks traditionally, we would pay commission but do we pay commision if the shares in this case gets assigned? 2. Also is commission payed for the option if assigned (As if we would buy back the option?) 3. Also in general if an option just expires with no assignment or expires worthless, do we pay commission?
You pay a fee for having you shares called away. Usually 20 dollars. Remember use the correct terminology. Assigned means stock has been delivered to your account. Called away means your long stock position was removed from your account and delivered to the contract holder who chose to exercise his long option position. Some brokerage firms will not charge you commission if you buy to close any option 5 cents or less in the money. (you still pay the cost of the option) No fees if options expire worthless. I recommend you visit www.optionseducation.com (Options Industry Council) It is Free and it is paid for by fees from trading options. Excellent resource, tons of videos etc..
Yes you are right, I should say "called away". Aside for the 20 dollars, I wonder will we pay the additional commission for the 100 stocks also as we would when selling 100 shares of stock (The regular commission) ? Also will we pay the commision for the optioncontract here when the stocks are called away?