Let's say I sell a call option and before expiration date, it is out of the money. The buyer would not exercise it normally. I am just curious as to what would happen to my account if he does decide to exercise it irrationally?
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If you sell a $100 call and the stock is $90, and somehow the broker lets the buyer exercise, you are short, at $100, and simply buy the stock for $90 to cover the short.
answered Jul 27 '18 at 1:41
JTP - Apologise to Monica♦JTP - Apologise to Monica
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Your account value would increase by the amount the call was out-of-the-money plus the remaining call premium if any -- a fantastic windfall thanks to the irrational exerciser.
It would also be a good day for you to buy a lottery ticket. :)
