I think I just got screwed! And man it's painful lesson.
Last fall, I sold covered call options in WCOM. Actually, the contracts were originally for MCI shares, but they were converted after WCOM bought MCI. Before I sold the Calls, I called my broker, Charles Schwab, and asked for an explanation of what the Jan 60 WCOM/MCI call contracts represented.
"Let's see," he said, "one contract represents 124 WCOM shares, plus $18.62 in cash."
Now I went over this with him at length, and it was my understanding that if I sold these calls and if WCOM ended up above 60, for every contract I would end up selling 124 shares of my WCOM stock at 60, plus I'd pay the $18.62 cash.
Well, here we are in January, and WCOM has been on a rampage, all the way into the 70s. My usual terrible timing notwithstanding, the options are due to execute this Friday, and I'm planning on getting the $60 for my shares. But the trading price of the Call options seems too high given how close the expiration date is.
Nervously, I called Schwab again, and asked the rep to explain to me what would happen when the contracts were executed. He looked up the contract, saw it represented 124 shares, and calculated it out just as I had. "Why then," I asked him, "is the option trading for so much more than its value?"
The Schwab rep couldn't figure it out. He said he'd call me back, which he did a while later. Sadly for me, what he figured out was that these options "represented" 124 WCOM shares, but they only pay you for 100 shares! So instead of getting $7440 per contract, I'm getting $6000. Effectively, my sell price for the WCOM shares has been reduced from 60 to 48.34!
I'm taking a 20% hit because neither of these bozo reps at Schwab knew what they were talking about. I wouldn't have even entered into these contracts if the terms had been fully disclosed to me, which means today I'd still be sitting on my WCOM stock at 73 per share.
I'm out a lot of money, and I'm feeling pretty sheepish because I know I'm still the most to blame. It's my responsibility to understand what I'm buying and selling. But geez, it sure seems like they were negligent also.
Do I have any recourse here? |
