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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: Stephen L. Smith who wrote (7405)	5/5/1998 7:54:00 PM
From: mc	Respond to of 14162

Stephen, usually the only time you will get called out of a stock early is when one of two events occurs: 1.A dividend is coming up 2.The option is trading below its inherent value (eg a call has a 12.5 strike, the stock is at 13, and the option premium is .5 or less) These situations don't happen often. Most of the time your stock will be called away that last day. With CYMI there is no dividend so the only choice is #2. CYMI closed at 21 29/32. The May-20 call is worth $2 if you sell it. Thus, if the option holder sells the option and buys the stock he (or she) would be 3/32 better off than just exercising the option. However, there must have been a reason to exercise. My guess is that the person who exercised is a very small trader and is anticipating the stock to go up right away. I say they are a very small trader because the only reason to give away the 3/32 is if the fees (which are twice as much if you sell the option and buy the stock as opposed to just exercising) are more per share than the 3/32 the person would have made by selling the option and buying the stock for this move to make any sense at all. If the person only had a small number of options, 3/32 could have been eaten up by the extra trade involved in selling the options and purchasing the stock. You have run into a rare situation that didn't work in your favor. You just happened to draw the unlucky random lot that caused your one contract to be exercised. Additionally, you will probably have to pay additional transaction fees when the rest of your shares are called away, but, that depends on your broker. If I were you I would call and ask. Good luck, Gary