I received a few emails from readers whose option holdings have already been exercised against them, and have asked me for advice on how best to proceed.

In the last few months, we have enjoyed several positions that have gone deep in the money, earning tidy profits. So, it is important that we tread carefully to get the full benefit. So, here we go.

The options traded on US exchanges and referred to in my Trade Alerts are American style, meaning that they can be exercised at any time by the owner.

This is in contrast to European style options, which can only be exercised on the expiration day.

The call option spreads that I have been recommending for the past year are composed of a deep out-of-the-money long strike price plus a short portion at a near money strike price. ?The combination is known as a vertical bull call spread.

When stocks have high dividends, there is a chance that the near money option you are short gets exercised against you by the owner. This requires you to deliver the stock equivalent of the option you are short, plus any quarterly dividends that are due.

Don?t worry, because your long position perfectly hedges you against this possibility.

You usually get notice of this assignment in an email after the close. You then need to email or call your broker back immediately informing him that you want to exercise your remaining long option position to meet your assigned short position.

This is gift, as it means that you can realize the entire maximum theoretical profit for the position without having to take the risk of running it all the way into expiration. You can either keep the cash, or pile on another short dated option spread position and make even more money.

This should completely close out your position and leave you with a nice profit. This is not an automatic process and requires action on your part!

Assignments are made on a random basis by an exchange computer, and can happen any day. Exercise means the owner of the option that you are short completely loses all of the premium on his call.

Dividends have to be pretty high to make such a move economic, usually at least over 3% on an annual rate. But these days, markets are so efficient that traders, or their machines, will exercise options for a single penny profit.

Surprise assignments create a risk for option spread owners in a couple of ways. If you don?t check your email every day after the close, you might not be aware that you have been assigned.

Alternatively, such emails sometimes get lost, or hung up in local servers or spam filters, which occasionally happens to readers of my own letter.

Then, you are left with the long side deep out-of-the-money call alone, which will have a substantially higher margin requirement. This is equivalent to going outright long the stock in large size.

This is a totally unhedged position now, and suddenly, you are playing a completely different game. If the stock then rises, you could be in for a windfall profit.

But if it falls, you could take a big hit. Better to completely avoid this situation at all cost and not take the chance. You are probably not set up to do this type of trading.

If you don?t have the cash in your account to cover this, you could get a margin call. If you ignore this call as well, your broker will close out your position at market without your permission.

It could produce some disconcerting communications from your broker. They generally hate issuing margin calls, and could well close your account if it is too small to bother with, as they create regulatory issues.

In order to get belt and braces coverage on this issue, it is best to call your brokers and find out exactly what their assignment policies and procedures are.

Believe it or not, some are still in the Stone Age, and have yet to automate the assignment process or give notice by email. An ounce of prevention could be worth a pound of cure here.

Consider all this a cost of doing business, or a frictional execution cost. In-the-money options are still a great strategy. But you should be aware of all the ins and outs to get the most benefit.

I knew the letter from the IRS sitting in my mail box was bad news just from the color of the paper.

It was not light green, the color of a refund check from the United States Treasury. Instead, it was white, warning that it contained some sort of demand, audit notice, or threatened legal action.

In fact, it was far worse than that.

In the most stilted, bureaucratic language possible, I was informed that my $100,000 tax refund for 2015 had been paid out to someone else.

Another party using my name and social security number, but a different address, had already filed a 2015 return.

In order for me to get my money back I would have to file a new return and include hard copies of every single piece of supporting documentation. It was in effect a full paper audit. Then I would have to wait 60 days.

This was three months ago.

I informed my accountant immediately. I heard him shout across the room to his partner, ?Hey, I?ve got another one.?

He told me that half of his clients had had their refund checks stolen this year, and as a result, the IRS was now demanding automatic audits on all refund requests into four figures or more.

It gets worse. Budget cuts at the despised government agency means that huge delays are occurring in almost all interactions. Even routine requests can sit on a bureaucrat?s desk for two years. The number of standard audits has fallen substantially.

The ones that take place are just a quick pass over, often conducted by mail, rather than the in-person, no stone unturned drill downs of the past.

Furthermore, the government didn?t have the money to pay for the latest upgrade of QuickBooks Pro.

This means it is unable to use this online accounting service?s spreadsheets during audits when the taxpayer?s accountant has upgraded, greatly increasing the time required for each audit while decreasing its effectiveness.

As a result, QuickBooks is seeing the fastest and most widespread adoption of its latest software version in history.

You can?t make this stuff up.

I asked my accountant how long it would really take for me to collect my 2015 refund.? Better count on a year,? he said.

Then the news flash came out that hackers had stolen the tax returns of 100,000 individuals, including their personal information. I was clearly one of those victims.

Not only did the crooks discover my name and social security number, they also knew that my high school team name was the ?Apaches?, my first car was a Volkswagen, and that I was married in Tokyo. I bet they know my inside leg measurement as well (I?m not telling!).

It all reminds me that it is once again time to revisit Palo Alto Networks (PANW) and Fireye (FEYE). I have been recommending these two cyber security names for the past three years, issuing Trade Alerts on each opportunistic dip.

The near destruction of Sony (SNE) by North Korean hackers has certainly put the fear of God into corporate America.

Apparently, they have no sense of humor whatsoever north of the 38th parallel. I saw The Interview the other day on a plane, the film making fun of Supreme Leader Kim Jong-un that so pissed them off, and it totally sucked.

As a result, there is a generational upgrade in cyber security underway, with many potential targets boosting spending by multiples.

It?s not often that I get a stock recommendation from an army general. That is exactly what happened the other day when I was speaking to a three star about the long-term implications of the Iran peace deal.

He argued persuasively that the world will probably never again see large-scale armies fielded by major industrial nations. Wars of the future will be fought online, as they have been silently and invisibly over the past 15 years.

All of those trillions of dollars spent on big ticket, heavy metal weapons systems are pure pork designed by politicians to buy voters in marginal swing states.

The money would be far better spent where it is most needed, on the cyber warfare front. Needless to say, my friend shall remain anonymous.

The problem is that when wars become cheaper, you fight more of them, as is the case with online combat. Cyber wars are now happening every day, all the time, 24/7.

You probably don?t know this, but during the Bush administration, the Chinese military downloaded the entire contents of the Pentagon?s mainframe computers at least seven times.

This was a neat trick because these computers were in stand alone, siloed, electromagnetically shielded facilities not connected to the internet in any way.

In the process, they obtained the designs of all of our most advanced weapons systems, including our best nukes. What have they done with this top-secret information?

Absolutely nothing.

Like many in senior levels of the US military, the Chinese have concluded that these weapons are a useless waste of valuable resources. Far better value for the money are more hackers, coders, and servers, which the Chinese have pursued with a vengeance.

You have seen this in the substantial tightening up of the Chinese Internet through the deployment of the Great Firewall, which blocks local access to most foreign websites.

Some Mad Hedge Fund Trader subscribers in the Middle Kingdom have told me they can no longer access their US based online brokerage accounts, which are blocked by mainland ?porn? filters.

Try sending an email to someone in the middle Kingdom with a Gmail address. It is almost impossible. This is why Google (GOOG) closed their offices there years ago.

As a member of the Joint Chiefs of Staff recently told me, ?The greatest threat to national defense is wasting money on national defense.?

Although my brass-hatted friend didn?t mention the company by name, the implication is that I need to go out and buy Palo Alto Networks (PANW) right now.

Palo Alto Networks, Inc. is an American network security company based in Santa Clara, California just across the water from my Bay area office.

The company?s core products are advanced firewalls designed to provide network security, visibility and granular control of network activity based on application, user, and content identification.

Palo Alto Networks competes in the unified threat management and network security industry against Cisco (CSCO), FireEye (FEYE), Fortinet (FTNT), Check Point (CHKP), Juniper Networks (JNPR), and Cyberoam, among others.

The really interesting thing about this industry is that there are no losers. That?s because companies are taking a layered approach to cyber security, parceling out contracts to many of the leading firms at once, looking to hedge their bets.

To say that top management has no idea what these products really do would be a huge understatement. Therefore, they buy all of them.

This makes a basket approach to the industry more feasible than usual.

You can do this through buying the $746 million capitalized PureFunds ISE Cyber Security ETF (HACK), which boasts CyberArk Software (CYBR), Infoblox (BLOX), and FireEye (FEYE) as its three largest positions. (HACK) has been a hedge fund favorite since the Sony attack.

For more information about (HACK), please click link: http://www.pureetfs.com/etfs/hack.html .

As for my tax refund, I am still waiting.

I Have Some Bad News for You Mr. Thomas