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Strategies & Market Trends : The Covered Calls for Dummies Thread -- Ignore unavailable to you. Want to Upgrade?

To: M. C. Orme who wrote (784)	5/24/2001 12:44:40 PM
From: Brian Sullivan	Respond to of 5205

Call Options will usually be called if the stock trades above the strike price even a penny above it. In fact since the expiration of the option isn't until Saturday, if there is significant news that would effect Mondays trading you may get called even when the stock closes below the strike price. Call options no matter how far in the money are almost never call away until the expiration date. Mainly this is because the owner of a call has the time value of leveraged money working in his favor. It similar to your home mortgage, people typically won't prepay a mortgage loan that carried a below market interest rate. With call options the below market rate is essentially a zero percent loan rate. Conversely Put Option are very likely to be called early when the are significantly in the money for the same reason as above. A Put option holder that has a significant gain will want to exercise the option as soon as the time value of the option becomes less that the money he could earn in US Treasuries on the leveraged amount.

To: M. C. Orme who wrote (784)	5/24/2001 12:57:58 PM
From: Sully-	Respond to of 5205

In general, the share price must be slightly above the strike price to be executed. One must factor in the cost of commissions to complete the exercise of the contracts for the options to be profitable to the holder. If they were much closer to parity, it would be less expensive to let the options contract expire & purchase the stock outright. I believe duf's 25¢ above the strike is about what would be necessary to achieve that point...... assuming that there is more than one contract involved. However, the option holder may, at his own discretion, exercise his options, even if the share price is below the strike (significant positive news released after the bell on the Fri of options exercise, etc.). I actually had the opposite experience once. My stock in ELON closed about a dollar above the exercise price last year, but was not exercised........ due to a less than stellar earnings announcement after the bell on options expiration. I'm sure you will find that these kinds of situations are rare though. Ö¿Ö