Get Rich - Stay Rich - Investing for Monthly Income

Posts Tagged ‘make money while you sleep’

Understanding Option Exercise and Assignment

Exercise and Assignment

When a stock option is exercised, the call holder buys the stock, and the put holder sells the stock. When options are exercised, the OCC decides to which brokerage firm the exercise will be assigned, and the brokerage in turn decides which customer will get the assignment. When we are assigned an exercise and are required to sell our shares, the shares sold are said to have been called out or called away. Assignment occurs, then the shares are called out. Assignment on a short puts means purchasing the stock.

Assignment is completely random, and an exercise can be assigned to and appointed among several different call writers. Once assignment by OCC occurs, settlement between the buying and selling parties is automatic. Shares must be physically delivered once exercise occurs. The covered call writer doesn’t have to do anything; the call writer’s broker handles settlement, delivers the shares and collects the exercise funds. Option exercise or assignment can be partial: one can exercise less than all options held. Conversely, you may be assigned on less than all of your short calls or puts. However, one cannot exercise or be assigned on part of a single option contract. If you buy a call (put), you are not required to buy (sell) the underlying stock: you may sell the option to close or allow it to expire worthless.

Automatic Exercise

The OCC automatically exercises options that are $0.01 or more ITM, unless the option holder has notified their broker not to allow exercise of the option. Note that a stock’s price can tick up or down after the close on expiration Friday, resulting in calls or puts (but not both calls and puts) that were near the money at Friday’s close becoming in the money – and being exercised.

If you are long calls on expiration Friday, you could find yourself purchasing shares unexpectedly, due to a late-day or after market tick up in the stock. Or if instead long the puts, then, you might find yourself selling shares unexpectedly: and if you don’t own the underlying shares, this would either create a short stock position in your account, or your broker would buy you in (purchase the shares on your behalf) in order to cover itself. Be sure your broker knows your intention if you are long options at expiration and have nor closed them. Writers of short calls and puts can similarly find themselves assigned an exercise due to the same mechanism.

Early Exercise

Because stock options are American-style, you can be assigned as exercise any time an option is in the money, although options typically are not exercised early while there is still time value remaining. The reason is that the exercise of an option forfeits its time value; to capture the time value it is necessary to flip (sell) the option. But as expiration draws near, options that are in the money sometimes trade at parity, and this is when early exercise occurs. Options trading below parity practically beg arbitrageurs to exercise them for risk-less profit.

Where Stock Options Go

Option traders say that only 10% of options are exercised, which is generally true but not in all cases. Thus if you write a call, the odds against assignment are roughly 9:1, statistically speaking. But if a call is written ITM, the odds are quite high it will be exercised, despite the overall 9:1 odds. No matter where written originally, if the calls are in the money $0.01 or more at expiration, exercise is a virtual certainty. ATM and OTM options are never exercised, since it is cheaper to buy or sell stock in the open market than to exercise an option.

You have probably heard option seller’s state they are right 90% of the trades. This is due to only 10% or so being assigned. There is more to this story as we continue this journey.

***********************************************************************************************************************************

Get the book on Amazon – Passive Income Monthly Plan: Create 60 Paychecks in 90 DaysLearn to create 60 paychecks per month in passive income. It’s simple – get started with $5 to build unlimited income. One of the truly passive income opportunities for monthly income – month after month!

Join the Monthly Income Newsletter voted the best value for option income trading

Try Robin Hood to get FREE stocks 

Create a Passive Income Machine for Endless Income

How to Create 60 Paycheck Every Month

To achieve financial independence, you must create multiple income streams to replace earned income. Warren Buffett states “You will work the rest of your life if you don’t make money while you sleep.” There is a simple method to position yourself for unlimited passive income. Now, the recently released book , “Passive Income Monthly Plan: Create 60 Paychecks in 90 Days” lays out a plan anyone can achieve regardless of where you may be at the starting line.

Obtaining Extra Income is Absolutely Critical in Modern Day America

If you’re looking to get extra income… there is simply no need to get a part-time job. It’s much easier than that. The KEY to making money is tapping into multiple sources of income.

Once the extra money starts flowing… you can afford to live the way you want.

… you can take that dream vacation, buy that new house… or finally afford to start a family.

In other words, you won’t ever have to worry about the financial security of you or your family again.

The real trick is to make your money work for you!

The Book will show you how to:

  • Literally setup 60 monthly dividend stocks that will pay you each month – 720 checks per year! You can grow these dividends over time – Unlimited Income – to achieve early retirement on your terms;
  • Show you how to get stated with as little as $5 in new stock accounts that charge no commissions with no account limits;
  • Diversify your portfolio to be safe when the market goes into a downturn such as a recession or other market crisis – you continue to make monthly income regardless of market volatility;
  • Create a 15% saving account as no recommended monthly dividend stock has an annual yield below 10% – with the average across all investments at 15% – where else can you make this much income?
  • How to eliminate longevity risk – never outlive your money – your money will continue to increase your income to not only surpass inflation but grow in perpetuity;
  • Leave a life legacy to be passed on to your loved ones like the Rockefellers and other wealthy families have done throughout history.

The Passive Income Monthly Plan is a landmark publication that will change many lives. There is endless discussion and schemes online to suggest you can take over the world by writing articles, making Youtube videos and such. This book gets straight to the point with concise “how to” directions in a single sitting.

Get started today as the book is at a special price on Amazon Kindle. Click here to visit the listing: “Passive Income Monthly Plan: Create 60 Paychecks in 90 Days

To learn more about creating multiple streams of passive incomes, visit the website: passiveincomemonthlyplan.com for a free subscription.

Back to Warren Buffett – make money while you sleep – with this plan.

Get FREE Stock

Get FREE Stock - No Trade Commissions

Subscribe for FREE Trades

Subscribe for FREE Trades

* indicates required
/ ( mm / dd )
Archives
PopAds