Ask the Institute

Ask the Institute Archive

DATE: December 19, 2001

QUESTION:
If I own a LEAPS option, and I sell a call against it, if the stock is above my strike price, will my option be exercised?

ANSWER:
Assignment on a short-term call does not cause an exercise of a long-term call. What will happen is that the short call, after assignment, becomes a short stock position. Your total position will then be long one LEAPS call and short 100 shares of the underlying stock. To close out a short stock position, you can either repurchase the stock in the market or you can exercise the long LEAPS call.
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