Naked Call

Discussion in 'Options' started by cigarno, May 11, 2010.

  1. 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?
  2. Shhhhh


    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.
  3. 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.
  4. 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?
  5. If we are only discussing equity options, traders will also exercise their 100 delta puts for cost of carry purposes.
  6. Make sure the stock is borrowable.
  7. Look at your risk free rate, the cost to carry is almost nothing these days
  8. cigarno


    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
  9. 2% of Naked Call sellers actually end up naked.
  10. 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.

    #10     May 12, 2010