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Technology Stocks : Ascend Communications (ASND)
ASND 209.76-1.2%2:55 PM EST
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To: Glenn D. Rudolph who wrote (42970)4/8/1998 8:26:00 PM
From: Sowbug  Read Replies (1) of 61433
 
Glenn/Jan,

If I owned May 40 calls and exercised them tomorrow, wouldn't I be destroying wealth in the sense that the time premium of the option would disappear upon exercise?

Even if you were 100% sure that the stock's going to drop tomorrow, then you wouldn't exercise the option and sell the stock immediately; rather, you'd sell the options and collect the full current value of the option, including its time premium.

If that's correct, and there's no balancing transaction that recreates value equivalent to the premium, then it seems economically irrational to exercise before expiration, meaning in theory it should happen only extremely rarely.

I wrote some May 40 covered calls for $2 1/4. If Asnd reaches $42 1/2 sometime tomorrow, Would my shares be called away at that "moment" or I have to call and find out?

Jan,

Likely not. Typically options are not exercised until weekend after expiration. There a few exceptions but not many. Also, the buyer of those options are likely taking that position feeling scend will continue to climb and they will sell their calls at a profit rather than take stock. However, the market maker will end up with the call and call away your shares at expiration to pay for his expired calls<G>

Glenn

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