Just to help confuse the issue, I believe that, technically, a "naked" option can be long or short - just not part of a spread or covered by the underlying. But certainly the term is mostly used with short options. Also, please read the OCC Risk Document. You will find even significant risk with long options. You can lose much more than the cost of the option, for example. How? Well we had a poster who bought a large number of GOOG calls. They ended up going in the money at exp and were auto-exercised. Since the small account could not really purchased that amount of stock (as another poster just mentioned), the stock was liquidated Monday at a price lower than the exercise price. A significant loss was the result. Be careful out there. Good trading to all.
Shit, that sucks. I am aware of the auto-exercise rules though =D I'm sure I'll sell the option before the expiry month anyway. I know someone who trades options, and they suggested that I not hold the contract past the first day of the expiry month.
Ask Scottrade (or other brokers) if you can close your option positions. If the answer is yes, it means you can sell it back.
I believe that those calls went $0.27 ITM during after hours trading on the Friday, 3 cents less and they would have expired worthless. The following Monday they were auto-exercised, client didn't have enough funds so the stock was sold at about $7.00 less a few hours later. This was a retirement account so Interactive Brokers took the money from his regular account. I believe the loss was an extra $7000 on top of the premium paid for the calls, and all over 3 cents.
The option contract. A 6% move or so in the stock price can produce a 100% move in the option contract that is set to expire in a few weeks. DIA options can double with a 2% DIA (DOW) move.
No offense, but that seems to be the exact opposite of what I have learned. Since the Time Value has essentially disappeared, it becomes worthless at an increasing rate?
Take a look at the January ATM option chain for AAPL. Q: How much did AAPL move today? A: 4.8% Q: How much did the ATM options move? A: 100% plus
In the case of AAPL, aren't you also factoring in the recent unusually high volatility in the announcement of the iPhone, and the high volume of the underlying being traded? EDIT: Point being that AAPL vs. a much less volatile stock, you probably wouldn't see this to the same extreme?