Assignment

[RUSHIAT]

Hi,

On Thurs 24 June I placed an order on my Comsec account to Sell to open 10 X BHPG48 (June 2010 39.50 puts- expiring same day). BHP at the time was about $39.80 and traded as low as, and closed at $39.65 that afternoon. My trading statement the following day showed selling 3 contracts to close and 7 to open, and also showed I had been assigned 3000 @ $39.50. I rang Comsec, but haven't received any explanation. My personal take on it is if I'm short puts they can be assigned at any stage, even at a price less than what the stock is trading for. However I'm not quite sure of the mechanics of assigning stock; for example, if there are numerous open interests, to whom does the stock get assigned. I'd appreciate some ideas.

 

[village idiot]

interesting. while I'm not an expert in assignments in oz, having experienced precisely two, the holder of the put can of course exercise his right to sell his shares at 39.50 under any circumstanes he likes. the fact that someone motivated only maximising profit wouldnt do unless the market price was below 39.50 doesnt mean that someone cant have their own reasons for doing so, so the odd one gets exercised.

When that happens, or say someone decides to exercise early, my understanding is that it is assigned on a random basis among the open interest. i am not sure if, say someone exerises 3 puts, they assign the whole 3 to one short put at random or distribute them 1 by 1. your experience seems to suggest the former, which you wouldnt think was the right way. perhaps someone could expand on this.

 

[cutz]

My personal take on it is if I'm short puts they can be assigned at any stage, even at a price less than what the stock is trading for. However I'm not quite sure of the mechanics of assigning stock; for example, if there are numerous open interests, to whom does the stock get assigned. I'd appreciate some ideas.

Not sure what happened in your case but proper brokers allow exercise notification after the close.

Therefore if bad news comes on after the market has closed or the euro market cops a pummeling on the open and the US futures start to get trashed, holders of expiring just OTM long puts may want to get short by exercising in expectation of a gap down the next day.

My understanding is that the OCH randomly selects brokers who have short positions on the books, not sure how the brokers then selects which client gets assigned.

 

[derenik]

Correct me if I'm wrong but my understanding is that when you sell options you sell it to the other guy who buys them. You sell to open, the other guy buys to open and the trade is linked. So when the other guy exercises the options the request is sent directly to you.
And that other guy might exercise the options at any time just because he is assigned himself on some other options and he needs the shares to deliver.

 

[cutz]

You sell to open, the other guy buys to open and the trade is linked. So when the other guy exercises the options the request is sent directly to you.

Incorrect.

The other side may be buying to open or buying to close, from the moment the trade is executed the two sides have no obligation to each other, and assignments are randomly allocated by the OCH.

 

[derenik]

Incorrect.

The other side may be buying to open or buying to close, from the moment the trade is executed the two sides have no obligation to each other, and assignments are randomly allocated by the OCH.

Oh yeah, I see... Buying to close would break the link.
But does this randomness affect fairness? I mean I can probably be assigned on more occasions than the other trader and therefore could have more losses (depends on my strategy of course).

 

[cutz]

Oh yeah, I see... Buying to close would break the link.
But does this randomness affect fairness? I mean I can probably be assigned on more occasions than the other trader and therefore could have more losses (depends on my strategy of course).

Sorry I don't really follow.

In theory all ITM shorts are assigned on expiry.

 

[sails]

It was July10 expiry yesterday and BHP closed at $40.46. One would think that $40.50 short calls would be safe just as the OP thought his BHP otm puts were safe. Not so according to the list of this morning's assignments inserted below:



One thing I have found very annoying is that you can be assigned on just one lot of your position. Most Oz brokers charge a minimum fee for everything so you get charged this full amount for a one lot. In many cases, it would not cost any more to be assigned ten lots.

It makes me wonder just how random this is. IMO, it begs the question if brokers just "randomly" allocate one lot each to several retail traders as this would bring in significantly more fees. Yes, I am a skeptic... lol

 

[cutz]

Interesting Sails,

I wonder what the motive behind exercising a just out of the money call is, perhaps it had something to do with the euro market opening higher.

What do you reckon ?

 

[sails]

Interesting Sails,

I wonder what the motive behind exercising a just out of the money call is, perhaps it had something to do with the euro market opening higher.

What do you reckon ?

Cutz, it's something I don't understand. I posted this more to show that slightly OTM at expiry is not necessarily safe from assignment.

Some people obviously wanted to purchase the shares, but I don't know why they didn't purchase them at a lower price yesterday - there were good opportunities. In fact, there were even better opportunities to purchase them much cheaper over the last three weeks. Maybe someone else can shed some light on it.

Yeah, it may be because of the Euro market opening higher and the fact that options can be exercised after the market has closed.