I own a pretty decent amount of the January 18th $3 calls (over 1k) - there is currently about 22k in open interest.
I've held these for over a year so value the fact that any appreciation will be LT cap gains, therefor I want the most bang for my buck on these guys. I'm guessing the rest of the holders are doing the same as me and waiting to hear if we get news before expiration (i.e. waiting until the last minute to sell).
My question is this - is there any risk of getting substantially below market price for the options if everyone waits until the last minute? I have to believe that some arbitrage house would gladly snap these up on Friday the 17th to flip for a few pennies on each contract. At $3 strikes I know i will have to sacrifice a few pennies for commissions, but no other big discount should be expected, right? They're in the money so I'm fine with giving up a few cents for the opportunity to wait for news.
Also I believe that if you convert options to shares it's non taxable until you sell the shares. 1 yr. begins from when you purchased the options regardless of when you convert. If you exercise/sell to cover it would be non taxable as your costs are 100% of the shares sold to cover. However when you sell any of the remaining shares 100% of the sale is taxable, long term or short term, from the date of option purchase IMO.
but you need to ask your accountant/advisor.
I'm new to the Options world but while researching how options work, you can call your broker, and put in a exercise/sell to cover order which would convert your options to shares minus x amount of shares it takes to buy the shares at the strike price. say if you exercise at $6 and the strike price is $3, 1,000 contracts would give you a little less than 50,000 shares after the brokers fees are paid. Or you could put in a order for exercise/sell in which case you would net $300,000 less broker fees.
Sentiment: Strong Buy
...just be aware of the tax consequences. When you convert, you start the clock again on it being a long term versus short term gain. So even if you had held the options for over one year, the converted shares would need to be held another year before they could be sold for any gain to be considered long term. Plus you would owe taxes on the profits from the options you sold to cover your conversion price on the converted portion. So you would need to adjust accordingly to insure you take out enough profits to cover taxes owed. Obviously none of this is relevant if you are trading in a IRA, or similar account, where gains or not subject to taxes.
Exercising your call option is not a taxable event. Shares bought from exercising the call option is taxable only if you they are sold. If you hold the shares for over a year before selling them, then it is taxed as a long-term capital gain.
Selling your call options, however, is a taxable event. From a tax perspective it is better to exercise the option rather than sell them.
Sentiment: Strong Buy
You might consider executing those options and selling the $5.50 or $7.00 of 2105 to help pay for the execution . With a little agility you should be able to turn your $2.5 into about $6.00 by mid April and the ride should be interesting. good luck!
Mittens, you need to calculate any potential gain you may give up (or additional loss taken) between now and option expiration. Then calculate the potential gain if there is a partnership announcement, or even just a stock surge related to the start of the run-up into the PDUFA. In the past there has often been a "January effect" that has benefited small cap stocks during the first half of the month. This has not been so consistently seen in the last ten years, but it is a factor to consider.
You have already seen the risk that the PPS will be pushed back down close to $5 PS, as we approach option expiration this month, to inflict maximum pain. This is a well researched and documented occurrence. However, if you have been tracking and recording daily changes to the options over the last year, you should look to see what normally is the timing of the stock moves to the maximum pain point. In other words, you may see another stock surge later this week, before the final push downward beginning next week in which the options expire. These are just factors to think about and consider.
Assign your own weights to everything based upon what you believe the chance of each occurring. Then calculate your risk / reward ratio and make a determination what course of action is most logical. Obviously you can also do these calculations roughly in your own mind. The process should be the same though. "What am I potentially giving up, versus what could I potentially gain" and the chances of each scenario occurring.
No one on this board can advice you what risk / reward ratio works for you. Everyone has difference risk tolerances. Best of luck in what ever decision you make.
mitt,,,,, $3 call options traded today at $2.69, which I expect is a lot higher than the premium you paid over a year ago. You are most likely sitting with a very nice profit today and if you don't have the cash to exercise the option on expiration, you may want to sell you contracts ahead of time. If you think news is coming out before January 17th and the stock price is going higher, you may want to hold your contracts a while longer to see if you can do better than today's $2.69 price. I decided yesterday to sell my $5 call options to break even because I don't believe the stock price is going much higher through January 17th. If you sell today you get the difference between the premium you paid and today price. You can convert the profits you make selling your options into actual shares. I am not a licensed investment person and this is just my opinion, so please seek out other opinions and do your own research before making a decision.
Hold your 18Jan14 calls until the after the first hour of trading on Jan 17. The bottom is in for MNKD stock, which has traded $5-$6 since Sept 1. There is zero chance that MNKD stock will drop back to $5 or below. There is a small chance of a significant announcement on or before Jan 17 that will cause the stock price to jump to $7-$9 or more. MNKD to over $20 after FDA approval, which will happen by April 15. Long term: MNKD to $25-$35, or higher within three years.
Sentiment: Strong Sell
I am in a similar position but I plan to exercise all options which are in the money. If I will not have enough money in the account for that, then I will turn around and sell the exercised stock in the next 3 days or sell covered calls to bring in more cash. Selling the option always has a pretty hefty spread and the MMs are not inclined to play the middle right next to expiration IMO.
Sentiment: Strong Buy
That's the essence of my question - there really shouldn't be too much pain in a last second shuffle because a buyer with enough cash could flip them for a few pennies at the last minute.
Let's say the stock is trading around $5.00 on the 17th (Day before expiration) - I would think anyone could get at least $1.90-$1.95 for a $3 call... but not sure..