Stock assignment (covered calls)

Discussion in 'Options' started by noob_trad3r, Oct 15, 2009.

  1. Do options holder exercise after market close.

    Lets say a stock tommorow is ITM then OTM again. at market close will they exercise since it did touch ITM

    or can they exercise during the day and get the stock, even if it just touched ITM and back to OTM at close of day?
  2. Most traders exercise after the close. Sometime they will do intra day but never an option that is hovering in and out of the money. The only exercises I EVER did intra day was 100 delta calls and puts that were apart of div plays or interest rates plays. Either way you wont be assigned till the following morning anyway. Basically I wouldnt worry too much about this.

    Mark S.
  3. erol


    Div plays for calls and int rates for puts right?
  4. KAWill70


    Here is a related question. Assume one is long a stock and they sold a covered call. The call is in-the-money.

    What is the situation if they decide to repurchase the call during the trading day tomorrow which is the last day before expiration?

    Is there any chance of buying back the call at the same instant that the call is being exercised? Should my trading platform indicate if the stock has been called, or does that generally take place the following day?

    Also, is a dividend only a problem around the time of the ex-dividend date?

    Thanks, Kent
  5. Kent,

    no there is no chance. While the trader who exericses the option get long stock immediatly, the assignments are not booked until the end of the day. Thus if one closes his short call positon by days end, there is no way of being assigned on that call.

    As far as the Dividend, as long as you aren't trading accross months that have might have 2 dividends, yes.

    Mark S.

    ps please tell me you are not trading any live options right now. These things are important to understand before beginning to trade.
  6. KAWill70



    Thanks for the help. I have been selling covered calls successfully so am not a total newcomer.

    Currently I am long 400 shares of JNJ purchased around $56, Short 4 October 60 Calls for which I received $1.25.

    With Johnson & Johnson currently under $61.25 ($60.94), I am happy and may still be ahead of the game. I will likely let the Call options be exercised assuming the stock does not fall under $60 tomorrow.

    The dividend question did not relate to this position.

    I had wondered what might happen if one had written calls that were now ITM and the ex-dividend date was at hand.

    I assume to capture a dividend the option holder could exercise slightly ahead of the ex-dividend date so they held the stock on the record date. They would then have to hold the stock for one day to receive the dividend.

    Thanks, Kent
  7. yes you would exericse the option the day before the ex div date

  8. NOOB<

    Ask yourself this question:

    If a stock is trading at 50.00 and you own an expiring 50 call, would you exercsie it mid day?

    The answer better be NO.

    What do you have to gain? If the stock is above 50 at day's end you can exercise then (automatic exercise).

    If it is lower, you will not want to exercise.

    Only someone who has no idea how options work would ever exercise in your scenario.

    A good play would be to sell stock short at 50. If it moves higher, just exercise the call at day's end. that negates the short stock.

    If it moves lower, buy back the stock and throw away the call.

  9. You never learn that you were assigned an exercise notice until the following morning. Never.

    As Mark told you, the OCC issues assignment notices long after trading ends for the day. If you are no longer short the option at close of business, you cannot be assigned an exercise notice.

    #10     Oct 15, 2009