LogFAQs > #949093257

red sox 777 posted...

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.

Oh this makes sense - I'm guessing this is why calls below current price are available to be bought. These aren't holders of the shares selling new calls, as they would be selling calls at the current or higher price, these are previously sold calls that are just being resold with the current value of the share being taken into account?

I've noticed this with warrants. They just slide up and down in tandem with the associated stock price. Do you guys consider warrants much different than options? They are technically different as they cause the company to issue new shares rather than buying a share from an existing shareholder but to a retail investor that doesn't really mean much different I would think.

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