In this supplement, I want to address the benefit of a sold option being

exercised. Yes, benefit. Most traders are worried about an option being
exercised and for the most part, this is understandable. We hear people say
that there are no worries with buying options and that when you sell an
option, it might be exercised. There is fear in those words.

I am going to use an example of a 340 July Wheat Call. You will notice that
it is worth 5-6. That is 5 and cents. I am assuming that you have had this
option covered with another option in another month. If you had covered
this option with a futures or with an options contract in a different month,
you would be protected. That is why we cover options, to be protected. I
never discuss putting on naked options, so this is always the case.

The price of the option when you first sold it is irrelevant. We will just look
at it now with the Futures being 343-6 as stated on the top of the option page
below.

If you had sold a 340 July Wheat Call and the market closed above 340, it
will be exercised. The sold call will become a futures contract. Lets assume
that this will be the case in 3 days when it expires. Since you have it covered
with an option in another month, if the market goes higher, you will have no
worries of unlimited loss, just like before the option was exercised.

Now lets see what happens if the market falls. If the option was not
exercised and the market fell, this would not matter since you had purchased
a call and sold a call option. Now, the sold option is exercised and you have
a short futures contract. When the market drops now, you have unlimited
profit potential.

A limited risk trade with limited gain turned into a limited risk trade with
unlimited gain. So the next time you are worried about a covered option
being exercised, think again.

http://www.deltaneutraltrading.com
 http://www.barchart.com/mri/mrwopn4.txt

JULY 04 WHEAT - CBOT OPTIONS

06/22/04 days to exp: 3 int. rate: 1.30% calc. imp vol of *: 31.11%
strike last imp vol delta gamma theta-7 vega prem iv-skew
W N04 343-6
600-0C 0-1s 200.00 0.00 0.0001 0-0 0-0 0-1
560-0C 0-1s 200.00 0.00 0.0002 0-1 0-0 0-1
520-0C 0-1s 180.47 0.01 0.0004 0-1 0-0 0-1 +149.35
500-0C 0-1s 165.43 0.01 0.0004 0-1 0-0 0-1 +134.32
490-0C 0-1s 157.81 0.01 0.0004 0-1 0-0 0-1 +126.70
480-0C 0-1s 149.61 0.01 0.0005 0-1 0-0 0-1 +118.50
470-0C 0-1s 141.60 0.01 0.0005 0-1 0-0 0-1 +110.49
460-0C 0-1s 133.20 0.01 0.0006 0-1 0-0 0-1 +102.09
450-0C 0-1s 124.41 0.01 0.0007 0-1 0-0 0-1 +93.30
440-0C 0-1s 115.43 0.01 0.0008 0-1 0-0 0-1 +84.32
430-0C 0-1s 106.05 0.01 0.0009 0-1 0-0 0-1 +74.94
420-0C 0-1s 96.48 0.01 0.0011 0-1 0-0 0-1 +65.37
415-0C 0-1s 91.60 0.01 0.0012 0-1 0-0 0-1 +60.49
410-0C 0-1s 86.52 0.01 0.0013 0-1 0-0 0-1 +55.41
400-0C 0-1s 75.98 0.02 0.0016 0-1 0-0 0-1 +44.86
390-0C 0-1s 65.04 0.02 0.0021 0-1 0-0 0-1 +33.92
385-0C 0-1s 59.38 0.02 0.0025 0-1 0-0 0-1 +28.26
380-0C 0-1s 53.52 0.02 0.0030 0-1 0-0 0-1 +22.40
375-0C 0-1s 47.56 0.02 0.0037 0-1 0-0 0-1 +16.44
370-0C 0-2s 46.68 0.04 0.0063 0-2 0-0 0-2 +15.57
365-0C 0-3s 43.12 0.06 0.0094 0-3 0-0 0-3 +12.00
360-0C 0-4s 37.89 0.09 0.0140 0-4 0-0 0-4 +6.78
355-0C 0-7s 34.69 0.16 0.0222 0-7 0-1 0-7 +3.58
350-0C 1-4s 30.64 0.26 0.0342 1-4 0-1 1-4 -0.47
345-0C 3-4s 32.89* 0.46 0.0387 3-4 0-1 3-4 +1.77
340-0C 5-6s 28.85* 0.67 0.0404 2-0 0-1 2-0 -2.27
330-0C 14-0s 29.59 0.94 0.0133 0-2 0-0 0-2 -1.52
320-0C 23-6s 25.00 1.00 0.0003 0-0 0-0 0-0 -6.11
310-0C 33-6s 25.00 1.00 0.0000 0-0 0-0 0-0 -6.11
300-0C 43-6s 50.00 1.00 0.0003 0-0 0-0 0-0 +18.89
290-0C 53-6s 50.00 1.00 0.0000 0-0 0-0 0-0 +18.89
250-0C 93-6s 100.00 1.00 0.0000 0-0 0-0 0-0 +68.89
560-0P 216-2s 100.00 1.00 0.0000 0-0 0-0 0-0 +68.89
440-0P 96-2s 50.00 1.00 0.0000 0-0 0-0 0-0 +18.89
430-0P 86-2s 50.00 1.00 0.0000 0-0 0-0 0-0 +18.89
420-0P 76-2s 50.00 1.00 0.0000 0-0 0-0 0-0 +18.89
410-0P 66-2s 50.00 1.00 0.0000 0-0 0-0 0-0 +18.89
400-0P 56-2s 50.00 1.00 0.0001 0-0 0-0 0-0 +18.89
390-0P 46-2s 25.00 1.00 0.0000 0-0 0-0 0-0 -6.11
380-0P 36-2s 25.00 1.00 0.0000 0-0 0-0 0-0 -6.11
375-0P 31-2s 25.00 1.00 0.0000 0-0 0-0 0-0 -6.11
370-0P 26-2s 25.00 1.00 0.0003 0-0 0-0 0-0 -6.11
365-0P 21-4s 39.70 0.95 0.0083 0-2 0-0 0-2 +8.58
360-0P 16-6s 37.94 0.91 0.0140 0-4 0-0 0-4 +6.83
355-0P 12-0s 33.01 0.86 0.0221 0-6 0-1 0-6 +1.89
350-0P 7-4s 28.15 0.76 0.0358 1-2 0-1 1-2 -2.96
345-0P 4-4s 30.86* 0.55 0.0412 3-2 0-1 3-2 -0.25
340-0P 2-0s 28.83* 0.33 0.0404 2-0 0-1 2-0 -2.28
330-0P 0-2s 29.54 0.06 0.0133 0-2 0-0 0-2 -1.57
320-0P 0-1s 40.92 0.03 0.0047 0-1 0-0 0-1 +9.80
310-0P 0-1s 55.86 0.02 0.0027 0-1 0-0 0-1 +24.75

1 of 2 6/22/04 11:22 PM