Scope

• • State of Moneyness of an option contract – ITM, OTM, ATM etc.
  • Nuts and bolts of assignment and exercise process

Homework

• Evaluate each option trade 
• Think through expiration day
• Against each trade. 
  • Write what will happen if you do not close the option trade before expiry
  • What will be the impact of that on your portfolio (consider tax implications too)

Due date for homework : May 07,2024 

Sample Homework

Trade: Covered call on SHOP at strike price of $95 expiring on June 21, 2024

Assignment Condition: SHOP closes $0.01 above $95 at the end of June 21, 2025 trading day

Assignment Impact: 

• 100 shares will be sold from my account and $9500 will be credited to my account. 
• Selling 100 shares will trigger a taxable event. I had bought these shares at cost basis of $40 within a year so will have to pay for short term capital gains tax
• I do not want to pay short term capital gains tax, so my next step will be to close the trade as it gets near to the expiration date to avoid the assignment