Call Option Execution?

Question

I own a Call Option for Scholastic Corporation (ticker:SHCL) It is a March 2007 Call option/ Strike Price of $35.00. My broker told me that if it hits the strike price the call option will EXECUTE automatically. My question: When it executes, is the call option contract worth $35.00, or $3,500.00?

Answer 1

All stock options cover 100 shares of stock. So the value of an option is always 100 times the quoted price of the option.

Get a different broker. He doesn't even use the correct terminology, let alone correct and true information. A deep in-the-money Call will undoubtedly get exercised and the stock called away, but rarely, exactly, at the Strike Price.

Answer 2

If you bought the call option, you get to decide when to exercise it between now and end of March 2007. By the way your symbol is SCHL, not SHCL. The value of the option is the difference between the strike price and the security price. So when the security goes to $35.01, the option value is $0.01 per share. I presume the option contract you've got there is for 100 shares, in which case for every penny the security goes above $35.00, you gain another dollar. Note again, you have to tell the broker you want to exercise the option, it does not happen automatically.

A couple of other things, you don't actually have until the end of March, but rather 1-3 days before the last trading day in March, I think the Thursday before the last trading day in March. Also, if and when you request the exercise to occur, you then have a couple decisions to make: first, are you going to keep the stock or immediately sell it. Depending on the broker and your creditworthiness, they may be willing to lend you the $3500 to purchase the stock at exercise time if you don't have that much cash or collateral in your account. Of course if they loan you the money, you're liable for interest and margin charges and they probably have the right to sell the stock if its price declines below some threshold. If you're going to immediately trun around and sell, there will be some interest, but not much.

First thing I would do is find another broker who knows something about options, if he/she sincerely believes the option "executes" automatically when the price hits the strike price.

Answer 3

First off, get a new broker.

Ok, now here's your answer.

First of all, call options usually do not exercise automatically unless it has any value at expiration, or you direct it to do so.

Second, if you have a $35 call option and the stock goes up to $35, you've still got an option with an intrinsic (real) value of $0. The only thing that you'd have in it would be time and volatility.

Third, let's presume somehow you do have the order in to buy the stock at $35 when it goes to $35 (it'll cost you $35 X 100 = $3500 plus commissions when you exercise your option because option contracts are in lots of 100 shares), why wouldn't you buy it today at $30.32 (closing price last Friday)?

Ok, so now we agree you need a new broker who's trying to rip you off.

At this point, I'd probably sell the call option, and use the money to buy an option on a real uptrending stock like GS (goldman Sachs) or AEOS (American Eagle Outfitters). To the end of the year, I'm going to guess it does better than the SCHL option.

Anyways, sorry to break the news about your broker. If you have any other questions, please let me know!

Hope that helps!



P.S. SCHL (not SHCL) was last over $35 last Oct 11th, 2005

Answer 4

Most call options are for 100 shares, so the execution (or exercise) is for $3500. However, the real problem here is that this should not be automatic. Your broker should not automatically exercise this for you. If the stock price goes above $35 before Mar 07 expiration, it is more advantageous for you to simply sell the call option than exercising it because it has time value, it worths more. Talk to your broker about that please.

Answer 5

I agree as above explanations