Why did I not get an assignment notice?

spindr0 · May 17, 2009

Quote from noob_trad3r:

I heard that assignment requests only get processed after the market closes? Now this means after hours you run the risk of assignment if the stock jumps 10 cents and is in the money correct? Thanks for your insight.
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Yep, It's also possible to be assigned if your option trades ITM during the day (at a discount) and expires OTM. The bottom line is that if you have a pin risk situation and you don't want assignment, deal with it before the close.

spindr0 · May 17, 2009

Quote from dagnyt:

1) It cannot increase his taxes unless it increases his wealth. Taxes are never more than 100% of the profits.
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100 pct???

I wish I could pay 10 billion dollars in come taxes this year
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Hey! Get in line and behind me !!!

dagnyt · May 17, 2009

Quote from TraderSU:

FYI - I'm a newbie so please correct me if my understanding is not right.

Assuming GE was trading at 14.20 at the time of CCW (covered call writing) i.e. May 11; here are possible outcomes for his CCW.

* GE trading above 14.26 - he is at loss - delta 1

A very common misconception. He has lost nothing. When anyone writes a covered call, he/she collects time premium. That premium is not a gift. Something must be paid for that premium collected.

What must be paid is the willingness to accept a maximum profit. That's the deal:

The writer gets the premium; The option buyer gets all the upside. It's not difficult to understand.

Any time the stock finishes above the strike - the price at which the stock was trading at the time the call was sold is not relevant because that determines the option price - then the writer sells stock, gains the maximum allowed by the strategy and that's that. Noting is lost. A contract was made and and the writer got paid.

When an assignment notice is received, the covered call writer makes the maximum profit that this strategy allows.

He cannot earn more than that maximum. If the stock runs higher, then that is not a loss. It merely locks in that predetermined maximum profit.

Please let me know if you understand this.

* GE trading between 13 and 14.26 - he is at 6 cents profit

Yes. And that's a very silly trade, IMHO. Covered calls are not written to gain 6 cents. - and that's before commissions. It would have been much smarter to sell the stock - if all he wants to gain is another 6 cents. It's important to collect a reasonable time premium when writing a covered call - or else why take the risk that the stock tumbles and a bunch of money is lost?

* GE trading between 12.94 and 13 - he is at 0 - 6 cents profit
* GE trading below 12.94 - he is at loss - delta 1

Yes. He loses on the downside. A lot of risk for a lousy 6 cents per contract.

So the problem here was that he went through all these hassles for only 6 cents of advantage (or what ever was the time premium at that time).

Right. He did get some downside protection - down to 13, but it would have been far smarter to sell the stock when all he had to gain was next to nothing and take downside risk.

It would be a great lesson if someone can please explain me the best thing to do in these type of situations.

1) Sell the stock outright

2) If you want to hold the stock, sell a call with much more to gain. Perhaps the Jun 13 call instead of the May 13. Perhaps a call with a 14 strike. But when time premium is low, there is no point in selling covered calls.

3) Another idea - strongly rejected by me - is to buy a protective put. That's very expensive and a very poor choice, IMHO. That play is ONLY for investors who expect the s ock to rise buy a very signigicant amount - more than the put premium - but at the same time are afraid it will decline severely. Overall a strategy that loses most of the time.

This strategy and all of its ramifications is described in detail in The Rookie's Guide to Options.

- SU [/B]
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Mark

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Why did I not get an assignment notice?

spindr0

spindr0

dagnyt