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Strategies & Market Trends : Option Strategies
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From: Elroy4/20/2022 11:59:41 AM
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Hello all,

Curious if anyone here knowledgeable about options might have an opinion on this question.......

UAN is an MLP, pretty volatile price over the past year so option time premiums are high.

UAN pays a variable distribution each quarter depending on the previous quarter's financial performance. They are expected to announce the Q2 distribution on about May 2nd, and the ex-date will be about May 15th.

So here's the question......I'm short Aug $125 UAN covered calls. UAN today is about $175, so the calls are deep in the money.

Does anyone have any opinion what May distribution amount is likely to cause the Aug calls to be exercised early in order for the holder to get the May distribution? If the call holder exercises early they receive the May distribution (good) but lose the May 15th - Aug 15th time value of the deep in the money options.

If the May distribution is zero, then the Aug call holder will likely not exercise the option early, there's no reason to do so. On the other hand, if the May distribution is $175, then the Aug call holder will definitely exercise the option before May because that's 100% of the current value of UAN.

How about in between zero and $175, does anyone know what dollar amount for a distribution is likely to cause the Aug call options to be exercised early in May?

Any opinion?
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