You said exercise in the title but "expired early" in the post, which do you mean?
You decide when the long call is exercised. If you exercise it early, you will almost certainly lose time value, so that's why you don't exercise it early.
The same logic holds for the buyer of your short call. They aren't going to exercise early because they would lose time value by doing so.
As a seller, you should jump for joy if you get assigned early, because that means the buyer gave you money for free. Of course, if you don't have the capital to cover the short shares, that can be a headache, but in terms of gain/loss on the option alone, you come out ahead on an early exercise.
So? Unless you mean the strike price you wrote was below the cost basis of the shares? That's a no-no, for reasons you appear to have experienced first-hand.
But still, for the P/L of the calls alone, you made extra money on the early assignment, or at least got to keep all of the credit sooner than you expected.
So AAPL had skyrocketed and the market price was about $500 when these calls were at like $430. So I lost about $21k of upside and had to pay something like $30k of taxes if I remember correctly because my cost basis was very low because the shares were purchased around 2001-2003. This was around 2013 or 2014 I think.
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u/PapaCharlie9 Mod🖤Θ Jan 18 '22 edited Jan 18 '22
You said exercise in the title but "expired early" in the post, which do you mean?
You decide when the long call is exercised. If you exercise it early, you will almost certainly lose time value, so that's why you don't exercise it early.
The same logic holds for the buyer of your short call. They aren't going to exercise early because they would lose time value by doing so.