LogFAQs > #949093044

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Topic	Stock Topic 13
red sox 777 01/04/21 1:03:32 PM #291:	CoolCly posted... Thanks! This is good to know. I wouldn't expect a guarantee since you can't really be sure what everyone would do when choice is involved, since some people just might see it's in the money whatsoever and exercise it, while some wouldn't, but it's good to know that's not quite the general practice. My broker says that if your option is in the money at expiry it will just go ahead and exercise it for you, so I'm assuming that most if not all brokers do the same thing. So if it's in the money at expiry I would expect it to be exercised. But that's very different from expecting it to be exercised any time it gets above the strike price. After all, even if I don't expect AMD to go to $95 by January 15th, and it's not there the day it expires, there is a much more decent chance it spikes there temporarily and then comes back down. If it's not there for a decent period, especially if it's not above it by a decent margin, then I think I wouldn't expect the option to be exercised. This means the likelihood your stock is actually taken lower, as an even higher and sustained increase in the stock would need to happen. This makes selling covered calls very appealing, I think. As usual, thanks for your insight. The reason it's rare for someone to exercise it early is that if they want to close the position before expiry, they can just sell the call rather than exercising it. Until expiry, the market price of the call will usually be higher than the exercise value because some people may think there is still some time value to it (i.e. it could become more valuable). On the other hand, if you don't think the call will rise farther, you can exercise it, so no one will think the call is worth less than the exercise value. I think where it does get exercised early, usually that's when the market price of the call and the exercise value are the same or almost the same - i.e. when the options market feels there is basically no remaining time value to the call and all the value is in the exercise value. --- September 1, 2003; November 4, 2007; September 2, 2013 Congratulations to DP Oblivion in the Guru Contest! <cite>red sox 777 posted [p:949093044] in Stock Topi... [t:79161174]...</cite> <quote>CoolCly posted... </cite> <quote>Thanks! This is good to know. I wouldn't expect a guarantee since you can't really be sure what everyone would do when choice is involved, since some people just might see it's in the money whatsoever and exercise it, while some wouldn't, but it's good to know that's not quite the general practice. My broker says that if your option is in the money at expiry it will just go ahead and exercise it for you, so I'm assuming that most if not all brokers do the same thing. So if it's in the money at expiry I would expect it to be exercised. But that's very different from expecting it to be exercised any time it gets above the strike price. After all, even if I don't expect AMD to go to $95 by January 15th, and it's not there the day it expires, there is a much more decent chance it spikes there temporarily and then comes back down. If it's not there for a decent period, especially if it's not above it by a decent margin, then I think I wouldn't expect the option to be exercised. This means the likelihood your stock is actually taken lower, as an even higher and sustained increase in the stock would need to happen. This makes selling covered calls very appealing, I think. As usual, thanks for your insight.</quote> The reason it's rare for someone to exercise it early is that if they want to close the position before expiry, they can just sell the call rather than exercising it. Until expiry, the market price of the call will usually be higher than the exercise value because some people may think there is still some time value to it (i.e. it could become more valuable). On the other hand, if you don't think the call will rise farther, you can exercise it, so no one will think the call is worth less than the exercise value. I think where it does get exercised early, usually that's when the market price of the call and the exercise value are the same or almost the same - i.e. when the options market feels there is basically no remaining time value to the call and all the value is in the exercise value. --- September 1, 2003; November 4, 2007; September 2, 2013 Congratulations to DP Oblivion in the Guru Contest!</quote> ... Copied to Clipboard!
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