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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study! -- Ignore unavailable to you. Want to Upgrade?

To: Greg Higgins who wrote (6047)	12/8/1997 12:48:00 AM
From: Greg Higgins	Respond to of 14162

Early exercising: From your experience, what proportion of CCs have been exercised early, and on average, how early? Well none, actually but that doesn't mean I don't consider the possibility in every trade. Remember, I look for security, return, repeatability. According to a book I'm reading, Option Valuation by Rajna Gibson, in a rational environment a call option should never be exercised early unless 1) the stock pays a divided, 2) the stock is selling at or above the exercise price and 3) it is immediately prior to the ex-dividend date and 4) the present value of the dividend is greater than the interest which can be earned on the strike price. The book proves mathematically that on non-dividend paying stocks, the call option is always worth more than the exercised value of the option (except at expiration), and hence should never be called away early. We live and learn.