just got around to reading this train of thots...
here's a great example of why you should close out short options early if you've captured most of your prems already... #reply-12652374
if you look at T&S for Friday on SCH, you'll notice a thin trading in afterhours that changed moved away from the mkt closing. the last few minutes of trading would have been enough for me to have covered early.
to me it's not worth that last 1/16, 1/8 or even 1/4 to let it expire. sometimes I'm happy w/ 50%, or 75-90% captured.
all depends.
as TomK writes, don't get greedy.
in the example above, the broker's .75 auto exercise is for long option holders. short holders can be assigned at any closing price... it just usually makes more sense if you're closer to the strike price... but look at MSFT the EX after FOF (if I recall that correctly)... after the Fri close, MSFT rose 5+ pts in the aftermkt to due to release news.
I'm extra paranoid... I want to know all the things that can go wrong before I enter any strategy... if you're in the game long enough you will run into almost all of them, so it's best to be prepared (I was a boy scout :)
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one last note, most brokers require you to call in before, say, 5pm ET to exercise a long option that is less than, say, .75 ITM based on mkt close price.
but members of clearing firms have all the way up till Sat expiration. and you know what? even if on by Monday you don't get a call from your broker and your stock (for a CC for example) is still sitting in your acct, if the close price + strike are very close, you cannot know for certain that the stock was or was not called... you may not find out for several days.
those are the risks of being short options.
all detailed in the OCC disclosure booklet. |
