Option Was Exercised

Susan Tanoe on

As we progress with both The Cool_Dude and the Cool Tools, we have been discussing if the option was exercised. I would like to expand on that discussion to see how others are handling this issue. What happens say if you sold a CSP on SPY on Mar 2012 at 120 which expired in April 2012 and the current price was 100 which was below the strike. Would you have continued to hold SPY, if so why? While holding would you have sold CC's or would you have simply waited until SPY rose above 120 to start selling CC's.

Thanks

Susan

Tami DeAngelis on

Susan – All decisions I make on both selling CSP and selling CC are based on the APR. So without the backwards discussion of how you got the SPY, my main decision would lie in your cost basis on the SPY. I don’t like to sell CC below my basis and I want to get 20%+ APR. From the looks of the price chart you could have been doing this weekly pretty much this entire year!

From: cool_club@bivio.com [mailto:cool_club@bivio.com] On Behalf Of Susan Tanoe
Sent: Friday, September 07, 2012 7:54 AM
To: cool_club@bivio.com
Subject: [cool_club] Option Was Exercised

Thanks

Susan

Paul Madison on

Great question Susan,

Yes I would have held and I would have started selling Covered Calls at the first opportunity above the price that it was put to me. Your actual basis would have been the 120 strike less whatever premium you collected ....let's $2 (I know it was probably different than that but just as an example). So your cost basis would $118 (plus a few cents to account for commissions) and so you could start selling covered calls at 118 and above whenever you saw good opportunities. Especially on Broad Market Indexes like SPY I would always accept the assignment and hold and sell Covered Calls as in general there is no reason to panic.

I had SPY's put to me (exercised) in the middle of March and I repeatedly sold calls on them until they were called away in August less than 5 months later. The net of Call premiums collected, the dividend collected, and the price appreciation was 6% making the APR just under 15%.

Hope that helps,

By the way, selling options on Broad Market Indexes (like SPY) is exactly the topic we will be exploring more in the next two Cool Club sessions.

Paul Madison

TheCOOLClubDude@gmail.com

www.bivio.com/COOL_Club

On Fri, Sep 7, 2012 at 7:53 AM, Susan Tanoe <susanlt@gmail.com> wrote:

As we progress with both The Cool_Dude and the Cool Tools, we have been discussing if the option was exercised. I would like to expand on that discussion to see how others are handling this issue. What happens say if you sold a CSP on SPY on Mar 2012 at 120 which expired in April 2012 and the current price was 100 which was below the strike. Would you have continued to hold SPY, if so why? While holding would you have sold CC's or would you have simply waited until SPY rose above 120 to start selling CC's.

Thanks

Susan

Susan Tanoe on

Thanks Everyone,

Just trying to gauge what is the best thing to do in the event that it happens and why. My thinking was that since I would have probably purchased the stock/ETF and the stock price swooned I would still have the stock/ETF no matter what price I purchased at. Interesting though.

On Fri, Sep 7, 2012 at 4:59 PM, Paul Madison <TheCOOLClubDude@gmail.com> wrote:

Great question Susan,

Yes I would have held and I would have started selling Covered Calls at the first opportunity above the price that it was put to me. Your actual basis would have been the 120 strike less whatever premium you collected ....let's $2 (I know it was probably different than that but just as an example). So your cost basis would $118 (plus a few cents to account for commissions) and so you could start selling covered calls at 118 and above whenever you saw good opportunities. Especially on Broad Market Indexes like SPY I would always accept the assignment and hold and sell Covered Calls as in general there is no reason to panic.

I had SPY's put to me (exercised) in the middle of March and I repeatedly sold calls on them until they were called away in August less than 5 months later. The net of Call premiums collected, the dividend collected, and the price appreciation was 6% making the APR just under 15%.

Hope that helps,

By the way, selling options on Broad Market Indexes (like SPY) is exactly the topic we will be exploring more in the next two Cool Club sessions.

Paul Madison

TheCOOLClubDude@gmail.com

www.bivio.com/COOL_Club

On Fri, Sep 7, 2012 at 7:53 AM, Susan Tanoe <susanlt@gmail.com> wrote:

As we progress with both The Cool_Dude and the Cool Tools, we have been discussing if the option was exercised. I would like to expand on that discussion to see how others are handling this issue. What happens say if you sold a CSP on SPY on Mar 2012 at 120 which expired in April 2012 and the current price was 100 which was below the strike. Would you have continued to hold SPY, if so why? While holding would you have sold CC's or would you have simply waited until SPY rose above 120 to start selling CC's.

Thanks

Susan

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