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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!
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To: JungleCat who wrote (13500)1/23/2001 9:56:57 PM
From: Dan Duchardt  Read Replies (2) of 14162
 
JC,

I know my shares can be called at anytime until expiration. However, what is the probability for that to happen? Will my shares be taken away even if the stock on expiration date is below 40, but had traded much higher than 40 earlier?

The chances of being called out early are small, but it can happen. Usually, unless the stock goes way above the strike price, the time premium remaining in the call makes it more advantageous to the call holder to sell the call than to exercise the option and buy your stock. There are a few wrinkles involving dividend distributions that can increase the chances of being called out early. Someone might want to grab the stock early to get the rights to the dividends, especially if they believe the stock will continue upward. Still, the remaining time premium has to get small for this to be a good move.

Dan
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