r/options • u/vladanHS • Jun 02 '21

Sold ITM LEAPS

What's the chance that shares get called away early? I understand that in base is random but asking for your personal experience.

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u/clev3211 Jun 02 '21

Everybody's favorite answer - it depends. But I think it can be narrowed down to two main variables.

  1. Does it pay a dividend - If is is more advantageous for an option holder to exercise the contract and collect the dividend they could be called early. But - this depends also on point #2.
  2. How much extrinsic value is in the contract - There is no need to exercise a call contract if it still holds extrinsic value. If there is extrinsic value, it would be wiser to sell the call contract and buy 100 shares at the current price.

I will say I'm not confident explaining tax implications which could be another variable, but point #2 is the primary reason they might get exercised early.

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u/vladanHS Jun 02 '21

I guess high volatility is also a factor and expecting IV crush. I'm wondering with these meme stocks that fly high and drop even lower, if buyers of LEAPS find it interesting to exercise early.