SR,
They don't have to buy the shares if they sell their in-the-money Nov '98 call contracts before the end of the day today. But if they do not sell their Nov '98 in-the-money contracts, the contracts will get assigned to call writers, who will have to deliver real shares of stock to the call holders. The call writers have to produce shares from holdings(covered call) or buy the stock on the market(naked call) at the market, to be delivered for purchase by the call holder at the strike price+commision.
When you 'buy' a call, you purchase the right to 'buy' a stock at a given price eg 10 $5 calls = the right to purchase 1000 shares at a fixed price of $5+commission.
If a call holder 'exercises' the call, rather than selling it before expiration (4PM today), they are indicating they want to purchase the shares at the strike price.
Also if a Nov '98 call is 'in-the-money' by an amount the brokerage house sets($.25-$.75 I-T-M depending on the brokerage), AND the call holder doesn't sell by the end of expiry trading day, today, it is 'auto-exercised' and the call 'buyer/holder' will receive notification that they are now the proud owner of shares of IOM that they have to pay for [strike price+commission] before end of day Monday.
SO, what I said was that there are over 30,000 in-the-money contracts, just looking at the $5 and $7.5 strike price, which is about 3,000,000 shares.
If all the call holders exercised or 'auto-exercised' their contracts THEN the call 'writers/sellers' would have to produce 3,000,000 shares to the $5 and $7.5 call 'holders'.
Now, the call holders could sell their calls back and the call 'sellers/writers' will be scarf them up to get out from under the potential obligation to produce the real shares.
That help?
Ben A. |
