A Note on Options Called Away

With the February options expiration only six trading days away, we have the good fortune to have profitable deep in-the-money options positions.

Those include:

The iShares Barclays 20+ Year Treasury Bond Fund (TLT) February, 2018 $114-$117 in-the-money vertical BULL CALL Spread

The Apple (AAPL) February, 2018 $150-$155 in-the-money vertical BULL CALL spread

The probability is now high that all of these positions will expire at their maximum profit point and that you will close out February with another blockbuster month.

It is remotely possible that some of you may receive notices from your brokers over the next few days warning that your short call or short put positions may get called away.

Apple goes ex-dividend on Friday February 9 so it’s not impossible.

Brokers have recently started doing this to avoid getting sued for failure to give notice, which they always do.

While it is theoretically possible that your in-the-money calls could get called away, it is highly unlikely.

Weird stuff happens on options expirations.

A call owner may need to cover a short position right at the close today and exercising his long calls (your short calls) is the only way to cover it.

There are thousands of algorithms out there, which may arrive at some twisted logic that the calls need to be exercised.

And yes, calls get exercised by accident. There are still a few humans left in this market.

All of these fun and games happen right at the market close.

If you do receive such an exercise notice, take it as a gift. It means you don’t have to wait until the expiration day to come out of you position with its maximum profit, you can exit RIGHT NOW.

When options owners exercise their positions before expiration day, they are giving up all of the premium in those options. That lost premium becomes your profit, as you are short.

If your calls or puts ARE called away, this is what you do.

Call your broker and tell him you want to exercise YOUR long calls or puts to meet the short position in your calls or puts. This is a perfect hedge. This is why I set them up this way.

This exercise process is now fully automated at most brokers, but it never hurts to follow up with a phone call if you get an exercise notice. Mistakes do happen.

If any of you are the slightest bit worried or confused by all of this, come out of your position RIGHT NOW at a small profit! You should never be worried or confused about any position tying up YOURmoney.

Professionals do these things all day long, and exercises become second nature, just another cost of doing business. If you do this long enough, eventually you get hit. I bet you don’t.

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