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Option Expiration Question
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Option Expiration Question

  #1 (permalink)
Trading Apprentice
Las Vegas NV/Clark
 
Futures Experience: Intermediate
Platform: IB
Favorite Futures: Options
 
Posts: 13 since Oct 2014
Thanks: 5 given, 1 received

Option Expiration Question

Hi, haven't traded in ten years, and I've forgotten a lot of things.

I currently own 300 AAPL and I sold 3 OCT 17? 99 calls. As long as AAPL stays at or around 99 I make maximum profit of $262.

All good so far. My question is this: when I get close to expiration should I:

A: Let the options expire and let the stock get called away

B: Buy back the options and keep the stock (and when exactly should I buy back the calls?)

C: Do some sort of roll (I know this depends on my opinion of the stock)

If the stock gets called away do I pay a commission on that? Same question if the options expire worthless.

What's the best trade to make to pay the fewest commissions?

Thanks

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  #2 (permalink)
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  #3 (permalink)
Trading Apprentice
TPE, TW
 
Futures Experience: Beginner
Platform: ib tws
Favorite Futures: gbpusd, vix
 
Posts: 49 since Jul 2014
Thanks: 11 given, 40 received


A: if option expires stock wont get called away, you keep it
B: if AAPL is over the strike, you have to decide if you want to keep stock or close the trade. Keep stock - buy calls back leave stock alone. Close trade - do nothing and stock will get called away.
C: only roll if AAPL is above 99 and you still want the covered call position

You pay commission when stock gets called away, there is exercise fee and stock selling fee. Some firms charge a small expiration fee, you have to check with your broker.

I don't think you should be deciding best trade based on commissions but the lowest commission answer is let option expire worthless if AAPL below 99 at expiration and roll the call if AAPL is above 99 at expiration.

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  #4 (permalink)
Trading Apprentice
Nashville TN/USA
 
Futures Experience: Intermediate
Platform: Thinkorswim
Favorite Futures: Derivatives
 
Posts: 35 since Nov 2014
Thanks: 0 given, 32 received


TGoat View Post
Hi, haven't traded in ten years, and I've forgotten a lot of things.

I currently own 300 AAPL and I sold 3 OCT 17? 99 calls. As long as AAPL stays at or around 99 I make maximum profit of $262.

All good so far. My question is this: when I get close to expiration should I:

A: Let the options expire and let the stock get called away

B: Buy back the options and keep the stock (and when exactly should I buy back the calls?)

C: Do some sort of roll (I know this depends on my opinion of the stock)

If the stock gets called away do I pay a commission on that? Same question if the options expire worthless.

What's the best trade to make to pay the fewest commissions?

Thanks

If you are doing an ongoing covered call strategy where you prefer to keep the stock and just collect ongoing premium as a cost basis reduction strategy....then roll the calls to the next month at least around 5-7 days to expiration. Always look to sell the 1st out of the money (or wherever makes the most sense) and never pay a debit for the roll....always collect as much credit as possible while staying as close to the stock trade price as possible.....

keep in mind AAPL has a dividends so if your short call has less extrinsic value than the dividend always look to roll it out and up or sideways to a strike that has more extrinsic value than the dividend. You can roll down in the same month if the stock price drops far away from your short call where there is little value left. I start looking to roll anytime my short call gets below 20 deltas or so...depending on time left to expiration.

To calculate the extrinsic value of an in the money (ITM) call simply look to see what the corresponding put is trading for....the corresponding put value is equal (or very close) to the extrinsic value of the ITM call. If, on the ex-dividend date your ITM call extrinsic value is less than or sometimes even equal to the dividend your shares WILL be called away and you will be responsible for the dividend. (see dividend risk)

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  #5 (permalink)
Trading Apprentice
Las Vegas NV/Clark
 
Futures Experience: Intermediate
Platform: IB
Favorite Futures: Options
 
Posts: 13 since Oct 2014
Thanks: 5 given, 1 received


ACstudio View Post
Keep in mind AAPL has a dividends so if your short call has less extrinsic value than the dividend always look to roll it out and up or sideways to a strike that has more extrinsic value than the dividend. You can roll down in the same month if the stock price drops far away from your short call where there is little value left. I start looking to roll anytime my short call gets below 20 deltas or so...depending on time left to expiration.

To calculate the extrinsic value of an in the money (ITM) call simply look to see what the corresponding put is trading for....the corresponding put value is equal (or very close) to the extrinsic value of the ITM call. If, on the ex-dividend date your ITM call extrinsic value is less than or sometimes even equal to the dividend your shares WILL be called away and you will be responsible for the dividend. (see dividend risk)

OK, this is good to know. I'm short 4 Nov 7 109 calls (long 400 shares stock) and the ex-dividend date is Nov 6 for .47¢. It closed around .47¢ yesterday, but is up good today. Will have to keep a close eye on it.

By the way, when on the ex dividend date is the decision made to assign the stock? At the open? Close? Something else?

Thanks.


Last edited by TGoat; November 5th, 2014 at 06:24 AM.
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  #6 (permalink)
Trading Apprentice
Nashville TN/USA
 
Futures Experience: Intermediate
Platform: Thinkorswim
Favorite Futures: Derivatives
 
Posts: 35 since Nov 2014
Thanks: 0 given, 32 received


TGoat View Post
OK, this is good to know. I'm short 4 Nov 7 109 calls (long 400 shares stock) and the ex-dividend date is Nov 6 for .47¢. It closed around .47¢ yesterday, but is up good today. Will have to keep a close eye on it.

By the way, when on the ex dividend date is the decision made to assign the stock? At the open? Close? Something else?

Thanks.

Just treat it as it can happen anytime that day....because if it's close...you need to already have made a move. The short calls at 109 are not in danger. You only have to worry about In The Money short calls that have an extrinsic value less than the dividend. So if the price of AAPL shoots above 109 on or before Nov 6...then you need to roll to DEC. Otherwise just sit back and collect premium and enjoy the ride.

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