Only 1. Five (5) "short" Calls in the September 2009 series in Centrica plc struck at 260p. These calls are covered by 5000 shares bought last week at 240p. If assigned on these Calls I make £1000.00p less the buy/sell commissions. The contracts expire on 18th. September 2009. There is an ex-dividend date in April. I took in £756.00p net of expenses when I opened the contracts. What are the possible outcomes?
1. The Centrica shares - presently 246.5p mid price - stay below 260p on ex-dividend day and through to the contract expiry date. In this case, I keep the £756, pocket the dividend, and keep the shares. The downside is that the stock may fall below 240p and I am nursing a paper loss. In which case I sell further Call options in (say) the March 2010 series and so recover (some of) the paper loss.
2. The shares climb above 260p by ex-dividend day. In this case I might be assigned by the counterparty who will buy the shares from me for 260p regardless of the market price, and he/she will collect the dividend. I have then made £1000.00p less buy/sell commissions on the shares, and I trouser also the £760.00p I got for the Call contracts - which die whenever the counterparty assigns me. Or -
3. The shares are below 260p on ex-dividend day but climb above 260p by expiry of the contracts. I must sell the shares to the counterparty on his/her assignment for the agreed 260p. My take is then as 2) above, plus the dividend payment.
Note that the two parties to an option contract are mutually anonymous. Neither knows who the other is.
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I don't leave comments on blogs that use Word Verification. Ditto blogs which I know have Comment Moderation applied. Life's too short and I'm too busy makin' money and what the Hell are these people scared of anyway? If you don't like some creep's comment . . TRY DELETING IT! You have that privilege.
And I never read unpunctuated so-called poetry. I don't understand why self-styled poets think it's clever to make their work difficult to read/understand.