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

To: FruJu who wrote (7311)	4/18/1998 11:42:00 AM
From: Douglas Webb	Read Replies (1) \| Respond to of 14162

How far are they in the money? Most brokers will exercise calls if they're more than 1/4 in the money; I suspect the same is true of puts. The idea here is that it's generally better for you to exercise than let them expire, so the brokers will do it automatically to prevent you from sueing them if you forget to do it yourself. Of course, they also say that they're not responsible for the exercise, so you can't sue them if they don't exercise, either. It's all in your option agreement. Doug.

To: FruJu who wrote (7311)	4/18/1998 12:00:00 PM
From: Herm	Respond to of 14162

Hi Evan, Great question! Normally, your brokerage will automatically exercise you options on expiration if they are in the money by even a small amount. So, if you (the holder) does not choose (or couldn't in your case) to liquidate the option in the market, it will be exercised for you. Therefore, the stock should be sold at the striking price and the net cost of the PUT is subtracted from the net sale proceeds of the underlying stock for tax purposes. The difference between the sold exercised stock price less commissions subtracted by the cost of the PUT(s) less commission is your taxable net profit. Example: XYZ @ $45 ($4,500 - $25 comm.) $4475 Net cost of PUT ($200 + $25 comm) - $225 -------- $4,250 net cost current stock $40 price $4,000 ------ $250 net profit NOTE - Based on the information you gave me I have no idea what your actual profit numbers will be. This is only an example of the dynamics and process to your situation for the reader's benefit.