Options Education and a Schedule Note
** Because of President’s Day, our offices will be closed next Monday, February 15 — so your next Cabot Profit Booster issue will be published Wednesday, February 17.
I’ve received a few emails the last two days from Cabot Profit Booster members saying they have been assigned on their SONO March 30 covered call option position. Here’s one of them:
“I got an email from my broker that my account has been assigned 1 SONO Mar 19 $30 call. Why is that? IT IS NOT MARCH 19 YET!! And what does it mean?”
This is actually a rare, but fantastic situation. Here is the headline, and then I will go into greater detail ...
Essentially you have locked in your full 17.5% profit one month ahead of time!
Now, as to the details: The investor who bought the call option from you made the decision to exercise early, and take ownership of the stock today, rather than waiting until March expiration.
Technically, he/she can do that whenever they want. Mathematically it was a poor choice by that person. But the good news is it frees up your capital, and you already have your full profit in hand, which is great.
There are any number of reasons why this can happen, although as I stated, it’s admittedly rare this far ahead of time, and the math doesn’t make much sense to do so.
However, SONO shares have enjoyed a large move, up over 60% since December 1. So, it’s possible that enthusiastic call option buyers want to take full position of the stock sooner rather than later, perhaps so they can turn around and write a covered call option of their own.
No matter the exact reason, if someone is willing to pay us our full profit well ahead of time, that’s a good thing.