Hi, Jean. Let's see if I can help answer your questions.
I have 1x 2002 160 LEAP.
Then it would be a wlual. It closed today at 101 bid, 102 asked.
My understanding is that I can exercise at any time, and get my 100 shares for that price.
That is correct, but you really wouldn't want to do that right now. Your leaps has a huge amount of time and volatility value left on it. The math is as follows:
You state that you bought the leaps contract for $5700. That works out to 57/share. If you exercised now, you could buy the stock for 160/share, but you would forfeit your premium, so your cost basis would be 217/share. That's $1.25/sh. more than you could buy the stock for on the open market, so overall, you would lose $125.
However, if you sell the leaps itself, you will receive 101/sh. or $10,100. Since you still forfeit the $5,700 premium you paid, your net gain would be $4,400, which is much better than losing $125!
That's why leaps and calls are rarely exercised before their date of expiration, as the exercising party would make less than if they sold the leaps or call itself.
Who is the person that owns this stock ?
That's impossible to tell, since the CBOE acts as the agent for both buyer and seller. Currently, there are 1,201 wlual contracts in play. In the rare case that a contract gets exercised prior to expiry, the CBOE chooses the seller who will lose their shares by lottery. The chosen one just wakes up one morning and finds money in their account in place of their missing stock. At expiry, every contract that is 1/4 of a point or more in the money is exercised automatically.
it seems that this person made a dumb move by selling 100 shares of QCOM at 160 to me
On the face of it, it would seem so. But perhaps they bought Q very low, and decided that 160 was a great place to take their profit. However, they had no pressing need for the money, so they sold you a leap for $57/sh which they pocketed, and will collect the remaining $160/sh. later. As a result, they receive $217/sh. for a stock they would have been happy to sell for $160/sh.
There are lots of ways to make money in the market, and each of us has their own agenda.
Congratulations on your good fortune,
UnQ |
