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Cima Labs Inc. (CIMA) Message Board

  • kis309 kis309 Nov 30, 2001 10:12 AM Flag

    KB...Options question.....

    If CIMA is at $35 or above on options expiration in December, will my calls that I sold be called away from me? I was under the impression that unless CIMA was above the strike price + option premium, which would be $37.40 for my case, that my call would expire worthless...is this true or not?

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    • Selling an option on a stock at $35 obligates you to deliver the stock to the option owner when he ponies up the $35 (not $35 plus some other number). You've already pocketed the premium ($2.40) less commissions.

      The buyer will not exercise the option if the stock is below $35, he will exercise it if the stock is above $35.

      • 1 Reply to Kodiakbull
      • Ok, but my question is this....the buyer of the Dec 35 call has paid me a premium of $2.40 per option. Now if I hold 10 Dec 35 calls and say CIMA is trading at $36 on option expiration day, why would the buyer of the calls exercise? If he exercises at $36, he is already sitting on a loss of $1,400.00 right away just from the premium alone, why would the buyer want to exercise and immediately have a loss right off the bat? CIMA would have to go to + $37.40 just for the trade to start to be profitable for him.