9

Remember writing a call is the same as being short a call, aka, selling-to-open. The correct method to cancel the obligation is to buy-to-close that same contract on the open market. Most brokers offer a drop-down list in the order entry tab, just select buy-to-close instead of sell-to-open. From Investopedia - Definition of 'Buy To Close' The closing ...


6

There are two reasons why most options aren't exercised. The first is obvious, and the second, less so. The obvious: An option that's practically worthless doesn't get exercised. Options that reach expiry and remain unexercised are almost always worthless bets that simply didn't pay off. This includes calls with strikes above the current underlying price, ...


4

The key difference between American and European options relates to when the options can be exercised: A European option may be exercised only at the expiry date of the option, i.e. at a single pre-defined point in time. An American option on the other hand may be exercised at any time before the expiry date. This is why American options are in general ...


4

If your shares get called on stock at a price below what you paid for the stock, your gain or loss depends on what premium you got for the options you sold. "can I deliver shares at that assigned strike using margin or additional capital if I have it? Can the broker just take care of it and let me collect the time premium? " You don't need margin or any ...


4

In the case of regulated, exchange-traded options, the writer of an options contract is obliged to maintain a margin with their broker, and the broker is obliged to maintain a margin with the clearing house. (Institutional writers of options will deal directly with the clearing house.) In the event that the writer is unable to make a daily margin call, the ...


3

Is the other side of my contract tied to a specific buyer? No, the OCC is the entity on the other side of your transaction. If I'm short a call, and the contra exercises their option, how is that assignment tracked back to me? It's not - the OCC selects one of its clearing members (generally brokers) at random, and that firm then assigns one of its ...


3

If you are in the money at expiration you are going to get assigned to the person on the other side of the contract. This is an extremely high probability. The only randomness comes from before expiration. Where you may be assigned because a holder exercised the option before expiration, this can unbalance some of your strategies. But in exchange, you get ...


3

You're correct. If you have no option position at execution then you carry no risk. Your risk is only based on the net number of options you're holding at execution. This is handled by your broker or clearinghouse. Pretend that you wrote 1000 options, (you're short the call) then you bought 1000 of the same option (bought to cover) ... you are now flat and ...


3

Yes, in principle this can happen, although you usually only get the notice the day after the option was exercised, due to the assignment process. In practice, however, the only time an early exercise may make sense is just before the ex-dividend day. In all other cases it is better to sell the option again instead of exercising it.


3

I often sell covered calls, and if they are in the money, let the stock go. I am charged the same fee as if I sold online ($9, I use Schwab) which is better than buying back the option if I'm ok to sell the stock. In my case, If the option is slightly in the money, and I see the options are priced well, i.e. I'd do another covered call anyway, I sometimes ...


3

When assignment occurs, you are notified that you are short the stock as of Tuesday morning. Buying the stock to cover on Tuesday will not result in a borrow fee. Of greater concern is the opening price of the stock on Tuesday. If you are short the stock and it opens higher, you're not a happy camper. You're probably already not a happy camper ...


3

Googling "delta probability expiration" will offer lots of references on the web that discuss delta as a proxy for the probability of expiring in-the-money. Delta is an approximation of the likelihood that the option will expire ITM. Since delta is affected by the various pricing variables, it will vary during the life of the option. Dramatic change in ...


2

When the strike price ($25 in this case) is in-the-money, even by $0.01, your shares will be sold the day after expiration if you take no action. If you want to let your shares go,. allow assignment rather than close the short position and sell the long position...it will be cheaper that way. If you want to keep your shares you must buy back the option prior ...


2

Yes, that's the risk. If the stock is bouncing around a lot your options could get assigned. If it heads south you now are the proud owner of more of a falling stock. It's good that you're looking to understand the risks of an investment method. That's important no matter what the method is.


2

An American option gives you the opportunity to capture a dividend payment. e.g. a $1 dividend is ex-div prior to the option expiration. The call buyer may exercise early and get that dividend as well. This is the one difference in value I can cite. There may be other reasons for early exercise having value, I'm just not aware of them.


2

It's unclear what you're asking. When I originally read your question, it seemed that you had closed out one options position and opened another. When I read your question the second time, it seemed that you were writing a second option while the first was still open. In the second case, you have one covered and one naked position. The covered call will ...


2

Yes. The put owner isn't likely to put it to you based on the dividend which follows ownership of the shares. He may still exercise the put at his whim, but not for this reason.


2

First off, you should phone your broker and ask them just to be 100% certain. You will be exercised on the short option that was in the money. It is irrelevant that your portfolio does not contain AAPL stock. You will simply be charged the amount it costs to purchase the shares that you owe. I believe your broker would just take this money from your margin/...


2

To Chris' comment, find out if the assignment commission is the same as the commission for an executed trade. If that does affect the profit, just let it expire. I've had spreads (buy a call, sell a higher strike call, same dates) so deep in the money, I just made sense to let both exercise at expiration. Don't panic if all legs ofthe trade don't show ...


1

Pending dividends affect time premium (puts increase, calls decrease). If an ITM call is near expiration and the dividend is large, the call may have no time premium whatsoever. It may even trade below intrinsic value. If you are short an ITM call with a pending dividend, you are likely to be assigned early if there is no time premium remaining, more so ...


1

Exchange traded options are issued in a way that there is no counter party risk. Consider, stocks and options are held in street name. So, for example, if I am short and you are long shares, no matter what happens on my end, your shares are yours. To be complete, it's possible to enter into a direct deal, where you have a contract for some non-standard ...


1

The long option can always be exercised, it doesn't need liquidity. But what can happen is that the underlying expires between the options, in which case the short option will be assigned, and the long option will expire worthless. There is some time after expiration, before the settlement date, to call the broker and request that the long option be ...


1

The option is exercised. The option is converted into shares. That is an optional condition in closing that contract, hence why they are called options.


1

This depends on a combination of factors: What are you charged (call it margin interest) to hold the position? How does this reduce your buying power and what are the opportunity costs? What are the transaction costs alternative ways to close the position? What are your risks (exposure while legging out) for alternative ways to close? Finally, where is the ...


1

Owning 100 shares and selling a covered call to fund the purchase of a put is called a long stock collar. If the strikes are different, it is equivalent to a vertical spread. If they are of the same series, it's a conversion. The only way that you could exercise your long put to sell the stock AFTER the short call has expired would be if the put ...


1

Yes, if the call expires worthless, leaving you with stock. Then you can exercise your put when the stock goes below put strike price.


1

If you get selected for exercise, your broker will liquidate the whole position for you most likely Talk to your broker.


1

In the case of Schwab, my covered call was exercised : And I pay a commission same as if I sold it.


Only top voted, non community-wiki answers of a minimum length are eligible