First, Do Nothing

Quite often, at least initially, no action is required on the part of the investor. This is the case when immediately prior to expiration the stock is trading below the calls’ exercise price. In this case the calls will expire worthless and the investor will be left with only a long stock position.

But there is now a decision to be taken. Should the shares be held unhedged, should they be sold, or should a new series of calls be written against this stock? The answer to this question needs to be driven by the investor’s outlook for the underlying security. If she is fairly strongly bullish she may wish to simply hold the shares. If she has become bearish, she should seriously consider selling the stock. And if she is neutral to moderately bullish, she could write a different series of calls, with the intention of selling her shares at the options’ exercise price.

Special Offers
*Third Party Advertisements

Advertisement Advertisement