No changes to my holding this week. I check the positions a couple of times a day to check for any trends. Because I am short (i.e. have sold) in the money calls, theoretically those positions can be exercised at any time. This would be a good thing, realizing my projected profit early and the ability to reinvest.
My position in NFI matures next Friday, and I am very curious as to the outcome. This stock goes “ex” a very large dividend ($1.40) on the same day as the option maturity. I see several possible outcomes to this position:
- I think the most likely outcome is that the option is exercised before Friday so the option holder can collect the dividend. If this happens I am locked into a small profit.
- If the option is not exercised before Friday, my results depend on the share price close on Thursday. If the share price is above the exercise price of $30 plus the $1.40 dividend the shares will drop by the dividend value on Friday. I will collect the dividend, keep the option premium, and have my shares exercised at $30 ( I get $30 per share less commission). This is the most profitable outcome for me.
- If I am still holding the shares on Friday and the price is below $30, I will get the dividend and option premium and still own the shares at a price below my original purchase price of $30.70.
- Finally if the share price drops out of the money before Friday, I may be able to buy the option back at a very low cost and keep my share position intact. It is probably less expensive at this point to just let the position mature.
It will be interesting to see how this all works out next week.