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Finance: What Does "Called Away" Mean? 58 Views

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Description:

What does “Called Away” mean? Calling away means that an option has been called and exercised and the writer is now responsible for giving the person who bought the option the underlying asset (or responsible for buying the asset as would be the case with a put). This term is also used with the trading of other securities like bonds.

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Transcript

00:00
finance a la shmoop what does called away mean? ....Okay Boeing the bomb maker was [Boeing plane dropping bombs]
00:08
trading at 127 bucks a share you thought it was getting pricey now at
00:13
25 times earnings well at $135 a share you'd sell it but here at 127 it was right on
00:21
the ledge in no-man's land unclear in your brain whether or not to [Girl thinking about stocks]
00:25
sell so you sold a covered call on it that is you sold another investor the

00:32
right to buy your Boeing shares any time in the next three months for $135 a
00:38
share that's what they pay you and that investor paid you two bucks a share for
00:42
that privilege so in essence you have a "forward sold" share of BA
00:48
at 137 not 135 right did you collect the two bucks there and you're feeling
00:54
pretty proud of yourself for coming up with this clever way to gently either [Girl feeling smug]
00:58
get out of the stock or make a free two bucks a share if the stock well never
01:02
went up that much but oh how the cold cruel street works...
01:06
A month later Santa tells the press that North Korea is being naughty and it
01:11
needs not socks or rocks but bombs dropped on it and a huge order for big [Bomb explodes]
01:16
fat noisemakers comes in to Boeing while the stock rockets overnight so to speak
01:22
From 129 to 152 a share, wow!
01:27
so what happens now well the other investor who paid two bucks a share for
01:32
the call option from you to buy your share at 135 well, they're dancing in
01:37
the street they're feeling pretty smart she paid two bucks for what is now a
01:41
gain of 152 minus 135 or $17 a share and yeah you read that right she just
01:47
made eight and a half times her money in a month good work if you can get it and
01:52
what happens to you well your shares of Boeing were called away yes took us a
01:58
while to get there to the definition thing they were called away by her thank
02:01
you very much then we're so far out of the money the other investor just called [Investor shouts and stock goes towards investor]
02:05
them right away paying you your two bucks and you just getting the hundred
02:09
and thirty-five bucks a share in cash there and that's it goodbye you lost all
02:13
the upside because your shares were called
02:15
away and meanwhile you watch the shares waft slowly upward over the next year [Boeing share value rising]
02:21
from 152 a share to 200 and you weep at the gains lost we also used the term
02:27
call away to refer to calling a bond early right like if you bought some
02:31
bonds from Boeing that gave them the right to call them before the bonds [Bond appears]
02:35
reached maturity and they do this all the time people well there's nothing you
02:39
can do those bonds will have been called away by Boeing so to be fair they do pay
02:44
you a little premium there usually for the privileged calling away yeah so not
02:48
necessarily the best thing for you but don't lose your cool and get mad because
02:51
when you sure don't want to end up on Santa's naughty list this year [Santa's reindeer fires laser at city]
02:55
we've heard Boeing's work wonders on Rudolph..
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