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On Dec 14, 4:45am, CalaxCorp@xxxxxxx wrote:
> Subject: [RT] A question for option brokers ??
> Dear RTs:
>
> I have been buying some call options several months out and writing
> out-of-the-money covered calls against them, with much shorter expirations,
> to take advantage of their faster time decay. Recently more of these covered
> calls tend to become in-the-money sooner due to the bullishness of the
> market. I have to buy them back way before expiration for fear of having my
> longer term options being called away and lose the remaining time value in
> them.
If you are long the longer term options, they won't get called. Only the
short, nearer term options can be called. Your broker _should_ tell you
that your short calls have been exercised and assigned to you, usually
by 10AM the next morning. I don't know if this is a rule, or a
generally accepted practice though. The real risk to be exercised is
that the market will gap down in the AM, and you're left with a net loss
on the long calls before you can take action and cover.
>
> My broker firm said they as a rule do NOT notify their customers when the
> short calls are assigned early to give them a chance to buy these short calls
> back instead of losing the more expensive longer term long options.
Hmm, I think they have no way of knowing you've been assigned, until
after the fact - ie, sometime after the close, but before the open the
next day. They can tell you that your short calls are in the money,
but you know that already. :) Technically, your short calls could be
exercised at any time, but usually it only happens if the remaining
premium is small, and usually that only happens during expiration
week. At least that's been my experience.
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