Covered Call: ACH reject the stock being optioned

[cuttlefish]

I guess it makes sense that only puts were exercised - it seems unlikely anyone would want to exercise a call over a stock that is suspended and not likely to trade again in a hurry.

For the put writers thats really part of the risk of a short position - effecitvely the equivalent of the stock price going to zero.

I assume that anyone that exercised would still have to have delivered stock - which mean they'd have to organise a stock loan I assume if they didn't hold stock?

If trading was opened up there would have been plenty of stock holders prepared to pay a hefty premium to get a relatively immediate return on their holding (albeit meagre) as well as the benefit of locking in the capital loss by transferring the stock away.

So opening the options for trading on the day of expiry provides an opportunity to allow the market to price the likelihood of the stock returning to the boards or not and at what price if it does.

Its really the autoexercise that is the main gotcha - something to be aware of for a long position holder.

 

[alphaman]

I assume that anyone that exercised would still have to have delivered stock - which mean they'd have to organise a stock loan I assume if they didn't hold stock?

Maybe that's why ASX opens the market for trading on the final day, so put holders without stocks can simply sell their puts to the market makers?

 

[xtanda]

The complication is that, if I want to get rid my stock, I just then write another ITM call, and it should be automatically exercised by the broker by the end of the day(otherwise I just write $0.01 call).. Then how the market 'value' the stock?

For example: if the reference price is $0.55, then theoretically $0.50 call can be sold for 55c or 50c (by intrinsic value restriction)...

What if the market just 'value' the stock at $0.4 for example, then the MM will price $0.50 call at very low number, then $0.40 call will be a bit higher...

But, if the market sell $0.40 call at 1c each, probably I take the change to buy some... once OZL announce they have successfully refinance, the price will shoot up. OZL is quite healthy company anyway (especially ZFX part who got plenty of cash)

I guess the option spread will be like:
strike price bid ask
$0.50 call 0.005 0.07
$0.40 call 0.001 0.17
$0.30 call 0.010 0.27

interesting to see....

 

[sails]

The complication is that, if I want to get rid my stock, I just then write another ITM call, and it should be automatically exercised by the broker by the end of the day(otherwise I just write $0.01 call).. Then how the market 'value' the stock?

For example: if the reference price is $0.55, then theoretically $0.50 call can be sold for 55c or 50c (by intrinsic value restriction)...

What if the market just 'value' the stock at $0.4 for example, then the MM will price $0.50 call at very low number, then $0.40 call will be a bit higher...

But, if the market sell $0.40 call at 1c each, probably I take the change to buy some... once OZL announce they have successfully refinance, the price will shoot up. OZL is quite healthy company anyway (especially ZFX part who got plenty of cash)

I guess the option spread will be like:
strike price bid ask
$0.50 call 0.005 0.07
$0.40 call 0.001 0.17
$0.30 call 0.010 0.27

interesting to see....

To the best of my knowledge, an ITM option holder can request that their option is NOT auto exercised - may differ between brokers, I don't know. So selling an ITM call may not guarantee exercise. Interesting that only puts were exercised on BNB - no calls.

However, if you really want to sell your shares, to buy an ITM put keeps you in control as the long holder. Agree, see what is offered on the day.

Anyway, it sounds like you may prefer to keep your shares as you sound confident about the company...

 

[xtanda]

mmm.. just have a chat with my broker about this 2 hour trading window, basically:

1. the trade is only to close out position (no new open position)
2. It will be 'normal' (not cash settled), so ITM call option will be exercised as normal but with delay settlement pending the resume of the trading of the stock

Hence, i cannot write new position or buy new option. (another strange policy ?)

So, the market will be only consist of holder of ITM call option that wants to cash in (and does not want to own the stock) as seller, and the ITM option writer that want to buy back his open call as buyer.

It will be very interesting...

 

[sails]

Not an ideal situation at all. Hopefully your calls are OTM and will expire worthless, xtanda. Thanks for sharing this info and will have a peek at OZL options on Thursday afternoon. Let us know how you get on!

 

[sails]

Just had a look at OZL options. Only a few sellers sitting in the ask and only one trade in the calls at the time of writing. This may change as there is still over an hour to go.

However, fair bit of activity on the put side. The interesting thing is that the 40 put strike had some trades go through just after 2pm between 5c and 10c -even though 55c is the reference price for auto exercise. That means they are technically 15c out of the money and should be expiring worthless.

The 50 put strike has trades going through up to 15 - in fact a number of put strikes appear to be well overpriced

Perhaps there are some scared put sellers who don't want to to take any risk of being "put" the stock and will pay more than normal to ensure they can get out. Not unless the reference price has been lowered...

 

[cuttlefish]

sails its possible a lot of the put buyers will be stock holders wanting to offload the stock so they can clear their books and write off the holding.

 

[sails]

sails its possible a lot of the put buyers will be stock holders wanting to offload the stock so they can clear their books and write off the holding.

I think xtanda's broker said they couldn't open any new positions - they could only close positions today. However, that's not mentioned in the ASX notice so it could be people buying puts to exercise later today. Still, it's a large premium to pay at expiry!

EDIT: see xtanda's post #25

 

[sails]

You would have to think there were puts being bought to open today. The 70c strike only had an open interest of 1019 and yet volume today ended up being 3048.

Must have been heavy buying demand as some of those 70 strike puts were going through at 49c - that's 34c of extrinsic value.

Would almost be worth being a seller of those options and effectively own the shares for 21c if you still believe it still has some life left in it!

How did you go today, Xtanda?

Took the snapshot below a few minutes before the options market closed - another 126 trades went through after this was taken.

 

[sails]

Below is a shapshot of the last few entries in the course of sales for OZL options exercised yesterday. Interestingly put strikes as low as 30c were being exercised even though the autoexercise price was at 55c. It is normally most unusual to have out of the money puts exercised. That would explain the apparently inflated put premiums yesterday.

Some calls were also exercised - some could have be due to auto exercise and not necessarily at the request of long call holders.

 

[xtanda]

I did manage to go online in the middle of company xmas party around 2pm...

unfortunately as advise before, I cannot open any new position.. cannot buy call , cannot sell call, cannot buy put ... my platform just give "Order Rejected - Stock Suspended".. I did not try to call the broker though as my option is still OTM...

I guess the one making money maybe only the market maker and some lucky one who did $0.4 call option. Why, all $0.4 call, $0.5c and $0.6c were sold at 10c around 2pm... so $0.4 writer who write ITM call can buy back the option very cheap.

But the latest development seems not very good for OZL as some lender walk out from refinancing talk and they have announce to close one mine in Tassie. My guess at the moment should the stock resume trading on 29 Dec, the investor will dump the share... maybe can go down as severe as $0.2.. Gee, I wish I have ITM call (hence autoexercise...) anyway... thanks for all your support...

 

[sails]

Thanks for the feedback, Xtanda.

Sorry to hear you couldn't find a way to have your shares sold by exercise. Perhaps it was a policy of your particular broker as I couldn't find any mention of not being able to open positions on the relevant ASX notice. I guess it could be in one of their standing policies and re-iterated in their notices.

That said, it did appear that was some buying to open going on - the 70c put strike only had an open interest of 1019 and yet volume for that day was 3048. That's 3 times as much volume vs. open interest.

If you are still stuck in it by Jan expiry, it might be worth checking with other brokers to see if they have the same policy.