I live in socialist paradise, Canada
Though I don't envy your taxes, Jean, there are at least a few of us on SI who aren't as rabidly on one side of the capitalist-socialist political spectrum as one might suspect from the others who make their opinions (more loudly) known. <g>
Is it still a good idea to sell them now and buy the common or do I exercise in June...if I exercise in June, I will lose the time premium...
I guess I'm not understanding your problem. If you have June 120 calls (UQDAD), they're selling right now for about 127, so they have only 127+120-239 = 8 points of time premium left to lose before they expire in June. This is only about 6% of their current value. If you include the interest (paid as margin or removed from other investments) on the money you'd need to complete the exercise now (say 8% x 5/12 year x $120) = ~$4, you'll end up paying half of that time premium in interest anyways, more if you believe you can invest the $120 at better than 8% for the next five months (and I would assume most of us here would think that to be the case).
So again, I'm not understanding what early exercise buys you here, or why you're really asking the question. Unless you really want to write covered calls against your position (for income, or as a hedge) and your account isn't approved for writing spreads (which would allow you to sell some higher-strike calls short against your long calls rather than the actual stock), just wait until expiration in June and exercise them then. You'll still avoid the tax consequences and you'll have five more months of time to use the low-cost $120 loan your options are giving you.
-Rose- |
