I'm sure others may have had different experiences, but I've found first that it is very, very rare to be called out of a position early, even if it becomes very deep in the money. Of course, the call buyer can exercise at any time, but generally is unlikely to do so early. The only time I have been called early was on a stock where the calls I sold were within 2 weeks of expiration, it was just about to go ex-dividend, and the call was several dollars in the money. There was very little time value left in the calls at that point. I have also seen a few times where the call buyer has exercised on the expiration Friday but that wasn't much of a surprise when the call was ITM.
Your broker will notify you if this happens, as they would any other time there is a sale in your account. If exercised early, you have no further obligation. The calls you sold disappear and the stock is sold away from you. You have the money and can make your next play.
On a volatile biotech, chances are there will be a time value in the calls until very close to expiration. If I were a call buyer, I would trade the calls to lock in profit, not exercise.
I also remember, perhaps a year ago, some mention of LEAP call plays using Philip Morris as the vehicle. The object was to sell deep-in-the-money LEAPS, reducing exposure to the stock while collecting the juicy dividend. MO was around $20 at the time and paying around 9%. As I remember, those players did have their LEAPS exercised quite early because of that huge dividend.
Lastly, if the call is right at the money or perhaps even slightly ITM (say you sold $15 calls and the stock closes that expiration Friday at $15-1/8) at expiration, you may not have your stock called away at all. It may still be less expensive for the call buyer to buy the shares in the market than to exercise. I'm sure others may have experienced having sold covered calls that expire even deeper in the money than that and still don't lose their stock. You can't count on that, though.
Hope this helps! VW |
