Selling In the Money Covered Calls

Discussion in 'Options' started by KAWill70, Nov 1, 2008.

  1. KAWill70


    Are In the Money Call Options only exercised at expiration?

    I just wondered if there are any cases where one could get exercised early.

    Thanks, Kent
  2. MTE


    Dividends is the biggest reason to exercise a call early. Do a search on "early exercise" here on ET and on Google, there are tons of stuff written on this.
  3. As MTE says, you could lose a dividend because the option owner exercises early.

    I know you didn't ask this, but early assignment is usually beneficial to the covered call writer and unless you desperately do not want to sell the shares, early assignment is your friend. [It allows you to reinvest the proceeds of the sale early - and it's always a good idea to put your money to work ASAP when it's earning income.]

    If you don't want to sell shares, covered call writing is not a great strategy. Write cash-secured puts instead.

    I recently blogged on this topic.

  4. Selling ITM covered calls is pointless, just sell the shares.


    Trading guru since 1974
  5. Bushido


    There are basically two types of options:
    american style options
    european style options

    European style options can ONLY be exercised at expiration.

    where as:

    American Style Options can be exercised at an point of time before they expire.

    If you are trading North American markets you are more likely to be trading American Style options in which case if they are ITM you are at risk of them being exercised though OTM options can also be exercised I have no idea why anyone would do that :)

    Btw. for information purposes only options are usually of two types
    1) Vanilla Options - European and American style options are a part of this.
    2) Exotic Options - I have no info about these :p
  6. KAWill70


    Thanks to all for the help. I have sold covered calls in the past but that was many years ago.

    My intent today would be to bring in extra income from the call proceeds, but only if a stock made a significant move up and I felt that a decline was likely.

    I hold a number of stocks that I would prefer to keep, so I realize that this is a risky proposition. My strategy would require good market timing and we all know how difficult that is.

    I am located in the U.S. and apparently can be exercised before expiration as several of you have mentioned.
  7. gkishot


    You can write OTM options. They have a lesser chance of assignment.
  8. They have zero chance of assignment. Why would anyone buy a stock for more than it's worth?


    Trading guru since 1974
  9. gkishot


    I am talking about chances of assignment before the options expire.
  10. ZERO







    Trading guru since 1974
    #10     Nov 1, 2008