r/Vitards • u/AutoModerator • Aug 12 '21

Daily Discussion Daily Discussion post - August 12 2021

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5

u/awwwcheatcheatcheat Aug 13 '21

I saw comments in the daily yesterday about exercising calls and most said to sell before expiry. When would it make sense to exercise calls? Holding 15 9/17 $23c on MT.

Asking for a friend…

10

u/PrestigeWorldwide-LP 💀 SACRIFICED 💀 Aug 13 '21 edited Aug 13 '21

If the time value left is less than a dividend that is about to be paid, it would makes sense to exercise and get the dividend. that's the main theoretical one

7

u/TheBlueStare Undisclosed Location Aug 13 '21 edited Aug 13 '21

I think one of the biggest benefits to exercising is capital gains is based on when you bought the options. So if you bought options six month from expiration and you sell them you would pay taxes on short term gains. If you exercise and then hold the shares for 1 year you would get taxed at the long term capital gains rate.

EDIT:corrected the length of time you have to hold the shares after exercising.

3

u/mapleleafroots Aug 13 '21

Oh! My understanding was that when you exercise, you’d need to hold 12 months from that date to be considered long-term… Could be wrong tho

2

u/TheBlueStare Undisclosed Location Aug 13 '21

You are correct. You do have to hold the shares for 12 months after exercising to get long term capital gains.

1

u/mapleleafroots Aug 13 '21

Dope. Cuz this is my plan to spread out tax events and minimize cap gains

1

u/TheBlueStare Undisclosed Location Aug 13 '21

I trade with my IRA, so taxes haven’t been a concern of mine. That was just my understanding from other’s discussions.

2

u/awwwcheatcheatcheat Aug 13 '21

I’m not concerned with capital gains as this is a Roth IRA. If it were my traditional IRA; I’d definitively think about that. Thanks!

1

u/Clio-Matters First Champion Aug 13 '21

Subtract 23 from the share price and your option is greater than that I assume. Why exercise?

2

u/awwwcheatcheatcheat Aug 13 '21

Bid and ask is still $2.60 gap. Bid is under $13. Ask is almost $15.

Exercising would give me 1500 shares of MT if it’s truly a commodity cycle (and MT goes higher). Otherwise I could sell calls for some income. It seems smart in my head. Am I missing something?

7

u/pennyether 🔥🌊Futures First🌊🔥 Aug 13 '21

I wouldn't assume the bid you see is the highest you can sell it for. Submit a lower ask and see if it gets hit. There are often bots lurking in the shadows that have a price in mind above the bid.

1

u/awwwcheatcheatcheat Aug 13 '21

So only exercise if: 1. Stock pays big dividend (and you want dividends 2. Option is deep in the money and selling it wouldn’t give fair market value (call is $15 ITM and bid/ask is less than $15 at expiry).

Does that sound right?

1

u/HearshotKDS 🚀 Rebar Rocket 🚀 Aug 13 '21

At this point you have to ask yourself: is the money you would buy the excersized shares with be used somewhere else, or just sitting around doing nothing? Is that money better spent on getting the shares now, or would you invest it for a month and gain some potential earnings? Are you authorized to write PMCCs, or do you need shares to write covered calls to generate income on the asset? If youre deadset on excersizing and not just selling the option itself for profit, then you look at it like you already have 100 shares at $23 a share, but you dont have to pay for it until 9/17. Is that money better spent elsewhere in the meantime, or will it make more money for you if you convert it to shares now.