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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Chuzzlewit who wrote (153384)	2/9/2000 11:51:00 AM
From: Geoff Nunn	Read Replies (1) \| Respond to of 176387

Chuzz, Let me take a stab at it. Perhaps the put buyer has a loss in the parent stock, and for tax purposes wants to sell prior to Jan 1. This assumes the put expires in January. Another possibility: he is paying a high rate of interest on his debts and needs cash. In either of these scenarios it may be rational for him to exercise early and forfeit the remaining time value. He could capture the time value if he sells his option, but I am assuming transactions costs make that prohibitive.

To: Chuzzlewit who wrote (153384)	2/9/2000 3:13:00 PM
From: GVTucker	Read Replies (1) \| Respond to of 176387

Chuzzlewit, RE: I've noticed that in my own trading -- most recently with TYC where 40% of my short put position was put to me almost 1 month before expiration. What confused me is that the put still had some time value in it (around $1.50 as I recall). Can you tell me why this happens? Two reasons why put options are exercised early. 1. The put is very deep in the money, and the interest on the funds realized by the put holder exceed the time value remaining in the put. 2. The owner of the put has tax reasons for the early exercise and wants to sell the stock; the tax benefit here theoretically should exceed the time value remaining in the put. 3. (Most likely in your case) The put owner is an uneducated investor, and doesn't realize that selling the put and selling the stock on the open market would realize more funds. This could be exacerbated if the put owner mistakenly believes that his/her position is short term bullish. For call options, dividend capture would be a reason for early exercise also, but this case would not exist for a put option.

To: Chuzzlewit who wrote (153384)	2/9/2000 4:09:00 PM
From: Sr K	Respond to of 176387

From my experience it is commissions, but it could also be an unwinding to generate buying power and the random assignment of exercises. Deep in the money options converted to marginable securities can get more bang for the buck. And some TYC and LGTO and DELL puts are deep in the money. Depending on your broker and commission deal, it costs less to exercise and sell than to accept the ridiculous listed Option spreads and pay the option floor minimums (even through discounters and online firms) to close out an option position. When I had Dell 45 Puts, I exercised them and later closed out the short. But even if I had exercised and immediately bought, it would have been better than closing out the put. Exercises, of course, result in an assignment by the Options Clearing Commission. A full description used to be available in a prospectus from OCC, and is now available in: Characteristics and Risks of Standardized Options ¸1994 CHAPTER VIII EXERCISE AND SETTLEMENT which is available at the cboe or OCC site.