What happens to my GTC coverd call order if stock gaps up?

Discussion in 'Options' started by noname, Nov 11, 2009.

  1. noname


    Ok, I'm curious what would happen here.

    I have a 4,300 shares of a rather volatile stock that is currently 3.53 per share. I have a GTC order to sell 40 December calls at a 5.00 strike for .20. .20 is the current low ask and it was .25 before I placed my gtc order.

    My only concern is that the company has been considered a takeover target for a long time and what if by chance they get offered say $8 a share when the market is closed and the stock gaps up to 7.50 tomorrow and I don't cancel my sell order? Will my options get sold for .20 cents at the open even though they would be $2.50 in the money or would I expect to still get filled at $2.50 or higher?

    What if the same thing happened during market hours? All the sudden the stock jumps from 3.50 to 7.50 on news. Anyone that notices a .20 ask would obviously by in a millisecond, is that a risk or would I still likely get a better fill?
  2. Tom1am


    Why would you even want to sell calls on this stock??
  3. noname


    because I find it unlikely the stock will be above 5 dollars by mid December and if it is then it is still a nice gain.

    This is also in a Roth IRA and I plan on holding for years buy and hold. So selling covered calls seems like a low risk way to make extra cash.
  4. spindr0


    If the options trade for 20 cts, you'll be fill. My bet is that even with a gap, you'll get filled at 20 cts.
  5. spindr0


    It's multiple choice. Sell the calls for the income. Don't sell them for capital appreciation. Pick one. Live with the decision. :)
  6. You'll get filled at 20 cents or pretty darn close especially on a small lot like that if gaps during the day.

    On an overnight gap you'll get the price where they open which will probably suck too
  7. What they will often do is artificially widen the spread at the open, e.g. make it .20x.60, just so they'll be able to pay .20 for your options.

    If you do get paid less than intrinsic value, call up your broker and complain.
  8. No way they would waste time trading them below intrinsic. They may widen the opening quote but if the price you got was vastly different from the next print with the stock pretty much the same you would have an easy case for a price adjustment.
  9. During the day they'll certainly try to pay you less than intrinsic if the option spread is large. A few years ago I had DOW $50 puts. I put in an order to sell them for $5. I didn't get filled until DOW was down to $44.85.
  10. Why would anyone pay over intrinsic value if the options had no time premium left? There are parameters which protect you and you're not forced to do anything.

    Not sure what your point about your order was since the "story" is so vague and we wont ever know the specifics.

    The bottom line is if the stock gaps during the day or over night you wont get as good a fill as if you were watching the market and then went into the market.
    #10     Nov 12, 2009