Looking for help here, really out of my depth. My wife and I inherited the following call options:
Brokerage:
CALL ENPHASE ENERGY INC $125 EXP 01/17/25
CALL PLUG POWER INC $10 EXP 01/17/25
CALL ROBLOX CORP $25 EXP 01/17/25
CALL ZIM INTEGRATED SHIP $25 EXP 01/17/25 (2 option contracts)
IRA:
CALL CHARGEPOINT HOLDING $5 EXP 01/17/25
CALL ENPHASE ENERGY INC $125 EXP 01/17/25
CALL ROBLOX CORP $25 EXP 01/17/25
All of these are in the red with the exception of Roblox. I understand the basic idea that one would never want to exercise a call option on a stock that has fallen in value. So I feel like there is nothing to do for those options except watch the stock price until January, when the calls expire, on the slim chance they appreciate.
For Roblox, currently at $43, it seems like we could sell the calls now for a profit, or wait until January if we think the value will increase even further. I read that 100 shares is the standard quantity for a call contract. So does this mean we need $5000 in cash on hand to exercise both Roblox calls and purchase the stock? ($25x2x100) Or can we just sell the options contracts themselves and avoid buying the stocks? The accounts are at Charles Schwab, is all this simple to do in their app? Is there anything else we should consider regarding the brokerage vs IRA accounts?
Thanks for any guidance, I’m sure these are simple questions.
Inheriting call options – some good, some bad
byu/flambourine inoptions
Posted by flambourine
1 Comment
I’d just think about it like this…
Do you like the stocks that each of these options represent? In other words, would you like to own the stock? If the answer is “No”, just sell the calls now. If the answer is “Yes”, then it’s a little more complicated. Come back and ask for more help if you have some “Yes” answers in here.
To address some of your other text…
>I understand the basic idea that one would never want to exercise a call option on a stock that has fallen in value
Eh – not really related. For simplicity, just assume that one wouldn’t exercise an option early (i.e., before its expiration date); so instead you would simply close the position for a gain/loss as opposed to exercising.
>So I feel like there is nothing to do for those options except watch the stock price until January, when the calls expire, on the slim chance they appreciate
Unless there’s a restriction on the account, you should be able to sell them whenever. The calls could very well continue to depreciate in value.
>So does this mean we need $5000 in cash on hand to exercise both Roblox calls and purchase the stock? ($25x2x100) Or can we just sell the options contracts themselves and avoid buying the stocks?
Yes – to exercise a call option, you have to have the buying power to purchase the shares. But at expiration, the price of the “in the money” (Stock Price > Strike Price) call option would be pretty much equal to the [Current Stock Price – Call Strike Price], so you can alternatively sell the call near expiration and pretty much get the same benefit as buying @ strike and immediately selling.
>Is there anything else we should consider regarding the brokerage vs IRA accounts
There can be tax questions you could bring up with your advisor… but if you’re talking about a handful of contracts here it’s probably not a hugely material difference. If there were hundreds of options though, then it may matter a bit more based on how the cost basis is considered.