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Last week I wrote a covered call for Walt Disney (DIS) with a strike price of 84.00 and expiring on 5/30/14. The stock closed at 84.01 on 5/30 but the holder of the call didn't exercise!
So I'm like, what, is $0.01 a share not worth their time? I thought most of the purchasers of options were big time traders or institutions who do such a big volume and have computers to do the work, so that even a penny would be worth it.
Last week I wrote a covered call for Walt Disney (DIS) with a strike price of 84.00 and expiring on 5/30/14. The stock closed at 84.01 on 5/30 but the holder of the call didn't exercise!
So I'm like, what, is $0.01 a share not worth their time? I thought most of the purchasers of options were big time traders or institutions who do such a big volume and have computers to do the work, so that even a penny would be worth it.
Thoughts? Did I just luck out?
You lucked out. It happens to me every once in a while.
Last week I wrote a covered call for Walt Disney (DIS) with a strike price of 84.00 and expiring on 5/30/14. The stock closed at 84.01 on 5/30 but the holder of the call didn't exercise!
So I'm like, what, is $0.01 a share not worth their time? I thought most of the purchasers of options were big time traders or institutions who do such a big volume and have computers to do the work, so that even a penny would be worth it.
Thoughts? Did I just luck out?
I believe the rule is that more than $0.02, exercise is mandatory, but within $0.02 exercise is at the discretion of the option holder (it used to be $0.05). So, yes, in a sense you lucked out, but within the rules.
I had one case where the option holder exercised at a strike out of the money at 4PM on Friday, but the after hours price was in the money so, since technically options expire on 12 noon Saturday, the holder exercised the option.
I don't follow DIS, does it have after hours trading? If so, perhaps it moved out of the money after hours.
I believe the rule is that more than $0.02, exercise is mandatory, but within $0.02 exercise is at the discretion of the option holder (it used to be $0.05). So, yes, in a sense you lucked out, but within the rules.
I had one case where the option holder exercised at a strike out of the money at 4PM on Friday, but the after hours price was in the money so, since technically options expire on 12 noon Saturday, the holder exercised the option.
My broker and maybe all of them have a time of 5:15pm as the deadline to exercise. If you had written a covered call on a stock that might have moved between 4:01 and 5:14pm, then you could have been exercised though the stock closed at, or slightly out of, the money.
Also, I have been exercised early, days early, so when you sold the covered call, you lost all rights. If the other side, be it a person or the CBOE, wants to exercise they will, you don't control it.
When I have written a covered call and there may be after hours news, I buy the option back.
Did you consider buying it back at 3:59 for 2-3 cents per contract?
If Disney had been taken over at $100 per share at 4:30, you would have sold at $84.
I go ahead and give the commission and buy most of the calls back if they are very near the money and news is possible.
With the stock closing at $84.01 and you were not exercised, and you sold the $84 call for a reason, you should have been set up nicely to sell an $84 call or the June 6th expiration which is a weekly, or a June monthly.
My broker and maybe all of them have a time of 5:15pm as the deadline to exercise. If you had written a covered call on a stock that might have moved between 4:01 and 5:14pm, then you could have been exercised though the stock closed at, or slightly out of, the money.
Also, I have been exercised early, days early, so when you sold the covered call, you lost all rights. If the other side, be it a person or the CBOE, wants to exercise they will, you don't control it.
When I have written a covered call and there may be after hours news, I buy the option back.
Did you consider buying it back at 3:59 for 2-3 cents per contract?
If Disney had been taken over at $100 per share at 4:30, you would have sold at $84.
I go ahead and give the commission and buy most of the calls back if they are very near the money and news is possible.
With the stock closing at $84.01 and you were not exercised, and you sold the $84 call for a reason, you should have been set up nicely to sell an $84 call or the June 6th expiration which is a weekly, or a June monthly.
My broker and maybe all of them have a time of 5:15pm as the deadline to exercise. If you had written a covered call on a stock that might have moved between 4:01 and 5:14pm, then you could have been exercised though the stock closed at, or slightly out of, the money.
Also, I have been exercised early, days early, so when you sold the covered call, you lost all rights. If the other side, be it a person or the CBOE, wants to exercise they will, you don't control it.
When I have written a covered call and there may be after hours news, I buy the option back.
On the first point, in my case, indeed the option may have been exercised between 4:01 and 5:14, I'd have to research it, but it doesn't matter at this point.
Several times option holders have early assigned me covered calls that I had written; there is a calculation to determine whether it is convenient to exercise early to collect a dividend. In those cases, I have sold the option back on the open market, from my perspective collecting two premiums during the same period, generating higher premium yield and maintaining liquidity, at the expense of the dividend (but option yield almost always higher than dividend yield) and any potential capital gains.
If they are long then you have the right to exercise, you paid a premium for that right.
I have options in 2-3 possible takeovers. I have to be careful and watch the news up to 5pm on Friday's (or the day of expiration in the case of a monthly option)
If I own a Blackberry $8 call and the company is taken over for $13 per share at 4:30 Friday June 6th and I do not exercise and buy the shares at $8 then I lost the other $5 by not exercising my right to buy at $8.
If the exchange is long contracts? Are you say the cboe is going long or short stock by exercising long options they own?
I understand how options work so you repeating a takeover or buyout scenario is not really relevant to my question and typically highly unlikely anyhow
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