In today’s take five segments, I wanted to do something a little bit different because we had something interesting happen with one of our positions in Wells Fargo.
What I want to show you is how to exercise one of the other options that you have long. Let me breakdown exactly what happened. We had the 50/52.5 credit call spread for Wells Fargo.
Here, you can see the 52.5 call and here, you can see the trade price is 50. What happened with our credit call spread is that Wells Fargo went into the money and we got assigned our short call spread.
You can see that now, we are short because of that short call spread that got assigned those two contracts. We are short 200 shares of Wells Fargo stock at $50.
Here’s the good thing. The position is still basically protected because we have those long 52.5 call options. In case Wells Fargo does continue to move higher, those calls make money as Wells Fargo, our short stock starts to lose money.
But if you wanted to completely reverse and wipe out this trade and neutralize it, then what you would have to do is you would have to go down here, and you would have to exercise your long call options that you have because remember, it’s your choice as the option buyer on this end to exercise these options or not.
All you have to do inside the Thinkorswim platform is click this little blue dot right over here, and you’re going to go up to “exercise.” That’s going to create the exercising order here to exercise those two options that you have.
And you can see that you’re going to exercise and it says –2 options, and then you’re going to get dealt 200 shares of stock. Those 200 shares of stock are going to directly reverse the 200 shares of stock that you are now short.
That’s exactly how you make an exercise trade inside of a platform. The only thing you want to be concerned about is just additional broker commissions for doing the exercise, so make sure that you check with your broker to see if they have additional requirements or higher commissions.
Most brokers do because of the exercise. But it's very, very easy to neutralize something like a short stock that you don't want to take now because in this case, Wells Fargo is taking up a lot of our buying power with that short stock.
As always, I hope you guys enjoy these take five segments. It's meant to be five minutes into your day to learn one new cool thing about options trading and help you become a more profitable and smarter trader. Until next time, happy trading!