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Technology Stocks : Ascend Communications (ASND) -- Ignore unavailable to you. Want to Upgrade?

To: Sowbug who wrote (42973)	4/8/1998 8:55:00 PM
From: Glenn D. Rudolph	Respond to of 61433

If I owned May 40 calls and exercised them tomorrow, wouldn't I be destroying wealth in the sense that the time premium of the option would disappear upon exercise? Sowbug, That is correct. You would be better of selling your calls if you feel a top has been made. You do lose the time premium when exercising. Even if you were 100% sure that the stock's going to drop tomorrow, then you wouldn't exercise the option and sell the stock immediately; rather, you'd sell the options and collect the full current value of the option, including its time premium. Absolutely true. More than 95% of options are never exercised for this reason. If that's correct, and there's no balancing transaction that recreates value equivalent to the premium, then it seems economically irrational to exercise before expiration, meaning in theory it should happen only extremely rarely. This why exercising is rare as you stated and even rare at expiration. Glenn