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[AMR Spread/Partial Assignment/Closing Position/See Detailed Discussion]
Dear Member,
This morning, I received notice of assignment of 1 contract of my short May 11 call (AMREM) leg of my bearish call spread. That means that 100 shares of AMR were sold short in my account. That leaves me with several alternatives. The first is that I could exercise 1 of my May 12 calls (AMREN). If I chose that alternative, I would sell short 100 shares of AMR at 11 (by virtue of the assignment) and I would buy 100 shares of AMR at 12 (by virtue of the exercise of my May 12 option) and that would result in a loss of $1 a share less the 35 cent credit I received when I originally entered the trade less commissions or a loss of 65 cents a share.
Another alternative would be to buy 100 shares of AMR at the current price of $11.95 and sell a contract of the May 12 calls (AMREN) for $0.20. That would result in a 75 cent per share loss less the original 35 cent credit or a 40 cent a share loss before commissions.
Another alternative would be to remain short the 100 shares of AMR that I sold for $11 (by virtue of he assignment) and wait to see if the stock drops. If it drops below 11, I could turn a profit and in the meantime, I can sell the May 12 calls.
I am placing the following orders:
1. I am buying 100 shares of AMR to cover my short position at $11.95 or better;
2. I am buying to close all the May 11 call (AMREM)contracts I am short
and am selling to close all the May 12 call (AMREN) contracts I am long for a net debit of 85 cents. (That will result in a net loss before commissions of 50 cents a share - 85 cent debit minus initial 35 cent credit.
DISCLOSURE: At the time of publication, I am short 100 shares of AMR, I am long 10 contracts of the May 12 calls on AMR and I am short 9 contracts of the May 11 calls.
Sincerely,
Bill Kraft for
CutLoss, Inc.
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