Syndicate
How Does one Obtain his or her Shares?
It has been mentioned what would occur if our hypothetical stock XYZ were to trade under $20 at the date of expiration. What would occur if XYZ were to trade over $20? If XYZ is trading over $20 when the closing for trading is approaching, the option would expire to where it is not worth anything and the transaction would not occur after this event. You would be able to hold onto the first $50 without problem but this also means that you will not be able to purchase one hundred shares of XYZ. How is this possible though? Wasn’t the objective of this method to purchase stock under its actual price and get paid to do so? Well, the idea of the strategy is to very possibly purchase the stock under the price it is currently at. The way this can be done is if the stock actually closes for trading at a specific expiration date under your strike price. This is the one problem that can occur in this method. The only way in which you can be assigned and get shares in your account, the price of the stock will need to close on the expiration date and be under the strike price level. In our last example you were able to purchase one hundred shares of XYZ at $20 per share given that it closed for trading at $19.80 on the expiration date, and this is below the $20 strike price. While the stock is trading under your strike price, you will obtain the assignation of that stock. In the event the stock were over your strike price, it will not be good for h the buyer to carry out the side of the contract therefore he or she will simply allow the option to expire. This means that you will not be able to purchase any shares of stock, however, you do get to hang onto the premium.