Oooh, nail-biting time. What's going on? Well, you wrote or sold call options on your shares of DIS with a $125 strike. The stock today trades at $123.90, and there are 9 trading days remaining until those options expire. You are near the pin, or end, of this option contract. Where will the final trade hit? What will the markets look like the next 2 weeks? Those calls you sold for $3 a share 2 months ago are either going to evaporate and become worthless if the stock remains at $125 or lower...or, if it trades above there, you're likely to have your shares called away, and/or owe the diff.
Like...if the stock goes to $126.80 in that time, you're a buck-eight in the hole. You'll still have made money in your $3/ share trade, but you would much rather make all 3 bucks rather than....less.
So that's pin risk. You're praying for a bearish market the next 2 weeks, letting those options expire and Theta to decay away to zero. Hold your breath.
Related or Semi-related Video
Finance: What Is a Call Option?25 Views
finance a la shmoop. what is a call option? option? option, where are you? okay
yeah yeah. not phone options, call options. and a close but no cigar. a call option [man smokes in a tub of cash]
is the right to call or buy a security. the concept is easy the math is hard.
you think Coca Cola's poised for a breakout as they go into the new low
calorie beverage business. their stock is at 50 bucks a share and you can buy a [man stands on a stage as crowd cheers]
call option for $1. well that call option buys you the right
to then buy coke stock at 55 bucks a share anytime you want in the next
hundred and 20 days. so let's say Coke announces its new sugarless drink flavor
zero it's two weeks later and the stock skyrockets to fifty eight dollars a
share. you've already paid the dollar for the option now you have to exercise it. [man lifts weights]
so you buy the stock and you're all in now for fifty five dollars plus one or
fifty six bucks a share and your total value is now fifty eight bucks. well you
could turn around today and sell the bundle that moment, and you'll have
turned your dollar into two dollars of profit really fast. and obviously had the [equation on screen]
stock not skyrocketed so quickly well you would have lost everything. still you
lucked out and now you're sitting on some serious cash, courtesy of your call [two men in a tub of cash]
options. as for Coke flavor zero turned out to be nothing more than canned water.
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