Will I be assigned?

[Seneca60BC]

Hi

I was short a CALL on the March 330SK on GOOGLE today and GOOGLE finished at $330.17 - will I be assigned on this trade come monday, meaning I will have to deliver 100 shares at the $330 price or is it not far enough in the money ?

Cheers!=

 

[cutz]

Yeah i reckon you will get assigned.

 

[sails]

Certainly at high risk of assignment. Hopefully you already have a plan in place on how to deal with it.

Unless you already own the shares to deliver (eg covered calls), it is vital to know your broker's policies on assignment and how long you have to close the share position. eg IB has been known to only give the first ten minutes.

 

[cutz]

Hi Sails,

I've never been assigned on a stock I didn't own but I’m assuming with a US brokerage/US stocks where there is plenty a stock available to short you will end up with a short position on the underlying in your account the next business day.

On the other hand being assigned on an aussie stock where there doesn't appear to be any shorting availability, the brokerage will automatically buy the stock on the open the next day for assignment delivery.

I'm I correct in say this?


BTW. Re Hoadleys, I’ve only got the free version so I guess that’s why I only get 5 lines.

 

[sails]

Hi Sails,

I've never been assigned on a stock I didn't own but I’m assuming with a US brokerage/US stocks where there is plenty a stock available to short you will end up with a short position on the underlying in your account the next business day.

On the other hand being assigned on an aussie stock where there doesn't appear to be any shorting availability, the brokerage will automatically buy the stock on the open the next day for assignment delivery.

I'm I correct in say this?


BTW. Re Hoadleys, I’ve only got the free version so I guess that’s why I only get 5 lines.

Hi Cutz,

In Oz, it depends on your broker (Oz or US), as their rules can vary somewhat. I won't touch brokerages who don't understand option assignment properly themselves. Ideally, a good broker will give you most of the day to deal with your assignment before they step in and do it for you. Some have a cut off time. However, the times I have been assigned, I usually make contact with the broker and ensure that their rules haven't changed. It also lets them know I am aware of the situation and that I plan to close the stock position by their required deadline.

I haven't shorted US stocks, so I don't know what their brokers require for margin. I guess if you didn't have enough funds in your account for margin, action would be required to close some of that short stock. It would pay to find out from the broker exactly how they handle it - otherwise it could become an expensive lesson.

But the other question to be asked is - do you really want the resulting stock position - is it a position you would put on if you hadn't been assigned...

 

[sails]

Hi

I was short a CALL on the March 330SK on GOOGLE today and GOOGLE finished at $330.17 - will I be assigned on this trade come monday, meaning I will have to deliver 100 shares at the $330 price or is it not far enough in the money ?

Cheers!=

I just found your thread on ET - so glad to read you escaped assignment

 

[Grinder]

You got lucky! Would have thought that was enough ITM to be assigned.

 

[Seneca60BC]

Yea i was lucky - didn't get assigned! Actually I didn't think I would given it was just ATM and not ITM.

Cheers!

 

[alphaman]

I was short $14 puts on Wells Fargo. On expiration day (last Friday US time) WFC closed at $13.99. I had cash to buy the shares, but assignment didn't happen. And we know US went berserk yesterday.

 

[cutz]

Yea i was lucky - didn't get assigned! Actually I didn't think I would given it was just ATM and not ITM.

Cheers!

G’Day,

Not that I’m doubting you but I’m amazed you didn’t get assigned, just as well yeah considering the huge move on Monday.

Recently I copped an early assignment on some aussie bank short puts that were only trading a couple of cents below parity, took my eyes off them for a day and bang, assigned over a few cents.

 

[Seneca60BC]

How many days till expiry for your short assigned options ?

 

[cutz]

G'Day Seneca60BC,

It was about 5 working days prior expiry.

 

[emilov]

I'm not sure how things work in the US but
In Australia if you are short calls/puts you will be exercised only if

• it is expiry day, the market is closed AND your options are in the money. On expiry day (last Thu of the month) you can be exercised till 7pm. How do I know that? I was short a BHP bear call spread and I was risking exactly that on Thursday. Luckily BHP closed 2c below my sold leg.
• it is before expiry and you are very, very deep in the money i.e. delta is very close to 1 (above 0.89 for calls, below -0.89 for puts)

Hope this helps.

Cheers,
Emil

 

[jackson8]

I'm not sure how things work in the US but
In Australia if you are short calls/puts you will be exercised only if

• it is expiry day, the market is closed AND your options are in the money. On expiry day (last Thu of the month) you can be exercised till 7pm. How do I know that? I was short a BHP bear call spread and I was risking exactly that on Thursday. Luckily BHP closed 2c below my sold leg.
• it is before expiry and you are very, very deep in the money i.e. delta is very close to 1 (above 0.89 for calls, below -0.89 for puts)

Hope this helps.

Cheers,
Emil

hi emil

just having a quick reading of your blog and have found very interesting so hopefully you will keep it going
just a quick question concerining one of your posts. hope you dont mind me posting it here?

BHP, that bastard! It was hovering around 32 during the greater part of the day. And then bam! It went up and closed at 32.48, just below my sold leg. No problem, you say? There is a problem: I could still get exercised till 7pm. And people would do that if they see BHP rise in the UK. And if I get exercised I'd have to sell stock, seven thousand shares of it at a price of 227,000$. In order to do that I'd have to own it first which means buying it at the market tomorrow.

quote from your blog

This is a problem because BHP could open lower than the strike price of my sold call. If that happens I'd be incurring a loss which is magnified by the large number of shares (not to mention the commissions) I tried buying back the sold call but nobody would sell me one. So now I'm exposed, and I'm hoping and praying till 7pm. The chances of exercise are low but not zero. And all this because BHP couldn't keep its fingers away from the jar!

should that read .....open higher ... as then your purchase price for shares would be greater than the strike you are receiving therefore incurring the loss

thanks
gary

 

[emilov]

Gary my man, you are absolutely right !
Thanks for that, I definitely meant higher and I just corrected it. In fact if it would open lower and I had been exercised I'd be lucky because I'd be buying lower and selling higher thus making a juicy profit.

BTW. You can add your comments directly in the blog (there is a Comments link below every posting). In fact, I encourage this.

Cheers, Emil

 

[cutz]

I'm not sure how things work in the US but
In Australia if you are short calls/puts you will be exercised only if

• it is expiry day, the market is closed AND your options are in the money. On expiry day (last Thu of the month) you can be exercised till 7pm. How do I know that? I was short a BHP bear call spread and I was risking exactly that on Thursday. Luckily BHP closed 2c below my sold leg.
• it is before expiry and you are very, very deep in the money i.e. delta is very close to 1 (above 0.89 for calls, below -0.89 for puts)

Hope this helps.

Cheers,
Emil

In Australia it's also possible to be assigned on a stock that has closed right on the money (for your particular strike) on expiry day, both puts and calls without the influence of dual listing. ( I’m not convinced that dual listing has influence but i haven’t bothered to take the time to think about it.)

 

[sails]

I remember around 2-3 years ago RIO had earnings release not long after the market had closed on expiry day. Earnings were much better than expected and those with long calls (probably mostly MMs) realised RIO would gap up heavily the next day (which it did). Many short call holders who thought they were safely OTM with RIO's end of day close, found to their horror they had been assigned. So the moral of that true story is to always know when earning announcements are due and ensure adequate protection is in place.

WMC was another one - take over offer before the market opened on expiry day sent the stock rocketing way above short call strikes that looked to be safe the day before. I knew of someone who had taken in $400 premium and thought they were safe - only to find they were about $10,000 ITM.

Something to consider: if you have a short position that is far OTM as expiry day approaches, and closer strikes would cost about the same as closing the short, buy a closer strike and leave the short in place. In the rare circumstances there is a massive move on or going into expiry day, at least that new long position would do extremely well while fully protecting the short.

 

[emilov]

Very good point. Additionally with stocks like BHP & RIO which trade all over the world one can get exercised even without reporting. In the case of BHP/RIO opening (much) higher in the UK some traders might chose to exercise purely on the speculation that these stocks will open (even if it is only slightly) higher on the next morning.

So, for these stocks, unless the written options are far out of the money always close your positions an hour or two before closing on expiry day.

 

[cutz]

Hi Sails,

Do you know if MMs are able to exercise later than the retail traders cutoff time of around 4:20pm (in my case)?

 

[emilov]

Cutz on expiry day exercise is possible till 7pm, for anyone who holds the options.