What happens to my sell to open call options?

What happens to my sell to open call options?
# GIMO is possible up for sale and price target is at $50-55.

I have #GIMO shares now and have sell to open call options with strike price of $50 and expiration on October 20, 2017.
What happens:
What happens if company gets acquired at price $49 before October 20, 2017?
What happens if company gets acquired at price $51 before October 20, 2017?

Please advise,
Thanks
RP

Comments

  • What happens to my sell to open call options?
    # GIMO is possible up for sale and price target is at $50-55.

    I have #GIMO shares now and have sell to open call options with strike price of $50 and expiration on October 20, 2017.
    What happens:
    What happens if company gets acquired at price $49 before October 20, 2017?
    What happens if company gets acquired at price $51 before October 20, 2017?

    Please advise,
    Thanks
    RP
  • edited June 14
    I am not familiar with GIMO, but I will try to answer your question about Call Writing. I am a bit puzzled as to why you would do this if you don't understand how it works and exactly why you had to sell call options. However, to give you a proper explanation, I will assume (not something that is usually wise to do) you wrote or sold covered calls on GIMO at $50.00. And I would like to emphasize the word "covered."

    Here is what should happen under the different scenarios. If the stock goes to $49.00 and/or sells below that price in October, you will still own the stock after the expiration of the call contract. The stock will not get called. You will keep whatever premium you sold the calls for provided you do not buy them back. You could choose to write calls on the stock again, but you don't have to. It's your choice. Don't let a broker or financial adviser tell you otherwise. That being said, there is nothing wrong with writing covered calls, but you should understand the basic rules and also tax considerations that can occur.

    If the stock is bought out at $49.00, you would simply get sold out of the stock at $49.00 and would retain the premium of the call if you did nothing and held until the expiration of the call contract.

    If the stock closed at $50.00 or was acquired at a premium in the range of $50-$55, once again if you do nothing the stock will be called or sold at $50.00 for how many contracts as you sold at that price. Each option contract is worth 100 share. So if you sold 1 contract at $1.00 and you own 100 shares, you will make $5000.00 on the sale of the stock and $100.00 on the sale of the call option, which would give you a gross total before commissions of $5100.00.

    I sincerely recommend that you do some serious reading on options, so you understand the topic better especially as it relates to your current position and if you intend to sell or buy calls or puts in the future. Selling naked calls for instance can be extremely risky.
Sign In or Register to comment.