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July 26th, 2018 at 2:27 am
Just going through my normal routine of checking ITM call options, I thought it might be a good idea to let, especially newbies know how I do it.
Checking on TOS the net share value on the call option does not always tell you the truth, this applies especially on options whose stock is close of paying a dividend.
Here I am looking at one example on my SO Aug 17 44 short caller. Holding 2 short options, my net shares shows -182, meaning I still have 18$ of premium in this option. Now why would someone call for the stock and pay me still 12$ extra? On the surface the assumption is true.
However looking a bit deeper at this position I see SO is ex div on the 8/17 the amount is .60 cents.
So here a simple way to check the 44 caller. Stock before opening today 47.55. Premium asked 3.62.
Here we go: 44 + 3.62 = 47.62 – stock value now 47.55 = .07 still premium. On the surface no reason to panic yet!
BUT as above the stock pays .60 of div. An eager option buyer will call for the option as it is more than .53 cents over 100% ITM. So for me, if I do not wish to land up with 200 short stock, I roll out to a value over the present stock value, or buy the caller back.
Hope this helps for some of you. And watch out for wooden nickels.
Have a nice new trading day. Trust it will be positive, as Trump has again changed his mind.
He is more unpredictable than a weather cock on a church steeple