Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe) -- Ignore unavailable to you. Want to Upgrade?

To: Cents who wrote (697)	2/16/1998 9:46:00 AM
From: broken_cookie	Respond to of 2241

tttanna, I think you want to sell your puts. Or "sell to close" your puts. See my response to Doug for the alternative.

To: Cents who wrote (697)	2/16/1998 7:00:00 PM
From: ----------	Respond to of 2241

Anna: As far as which is better, nobody will know that for sure until Friday after the market closes. WHat I meant by your breakeven is $106.50 is: you bought 110 puts you paid $3.50 110-3.50 =106.50 Inother words, at $109, you get $1.00 back, but you paid $3.50. That is still a $2.50 loss. As I recall, AOL is about 112-114. Right now your puts have zero intrinsic value. If you can sell them for anything, you are getting more than their intrinsic value. If you believe that AOL will fall well under $110 by Friday, you wait. In short, you do what you feel is correct. We will only know the BEST answer after Friday. Regarding the exercise & liquidate, that has been questioned. I must look for a source to document that. I'll post it or apologize for an erroneous statement. Regards, Doug

To: Cents who wrote (697)	2/16/1998 9:34:00 PM
From: ----------	Read Replies (1) \| Respond to of 2241

Reply #2 ..automatic exercise. Hi: I see Michael gave you a rundown of the various alternatives. He also mentioned the automatic exercise. He is an excellent resource for information. I reiterate that neither he nor I make any attempt to advise, suggest or even imply what one should or should not do. While I can think of several logical reasons why you would not end up with a short position in your account if you did nothing, I could only find the following. It does not specifically, clearly state the words "exercise & liquidate", it does say that the option BUYER cannot lose more than the premium paid for the option. Being short stock opens one up to theoretically unlimited losses. The following comes from the CBOE/OCC web site: Limited Risk For Buyer Unlike other investments where the risks may have no limit, options offer a known risk to buyers. An option buyer absolutely cannot lose more than the price of the option, the premium. Because the right to buy or sell the underlying security at a specific price expires on a given date, the option will expire worthless if the conditions for profitable exercise or sale of the contract are not met by the expiration date. An uncovered option seller (sometimes referred to as the writer of an option), on the other hand, may face unlimited risk. When can I anticipate being assigned? You can anticipate being assigned any time your option becomes in the money. Individual investors may be automatically assigned or exercised at expiration by The Options Clearing Corporation if the option is 3/4 of a point or more in the money. Also, most brokerage firms have rules under which options will be automatically exercised; check with your broker to determine which automatic exercise rule may apply. OCC has developed a procedure known as Exercise By Exception to expedite its processing of exercises of expiring options by certain brokerage firms that are Clearing Members of OCC. Under this procedure, which is sometimes referred to as "ex-by-ex", OCC has established in-the-money thresholds and every contract at or above its in-the-money threshold will be exercised unless OCC's Clearing Member specifically instructs OCC to the contrary. You should also note that ex-by-ex is not intended to dictate which customer positions should or should not he exercised and that ex-by-ex does not relieve a holder of his obligation to tender an exercise notice to his firm if the holder desires to exercise his option. Thus, most firms require their customers to notify the firm of the customer's intention to exercise even if an option is in-the-money. You should ask your firm to explain its exercise procedures including any deadline the firm may have for tendering instructions on the last trading day before expiration. Doug