Cash Secured Puts

Hilcrest_trader

Hilcrest_trader

I have a few CSPs that are ITM. They still have 29 DTE. I'm a relative newbie and I've never had stocks assigned.
  • Can the stocks be assigned at any time or is it more likely to happen in (say) the last 5 days?
  • Are there other criteria I need to consider - like depth ITM? If a CSP is ~10% in the money is it likely to be assigned early.
Anything else I need to consider?

Thanks
 
Hilcrest_trader said:
I have a few CSPs that are ITM. They still have 29 DTE. I'm a relative newbie and I've never had stocks assigned.
  • Can the stocks be assigned at any time or is it more likely to happen in (say) the last 5 days?
  • Are there other criteria I need to consider - like depth ITM? If a CSP is ~10% in the money is it likely to be assigned early.
Anything else I need to consider?

Thanks
More...

I pay attention to the amount of premium in the options I'm short & ask myself if I was on the opposite side being long, would I exercise the options for any reason?

If there's any significant amount of premium left in the options, then it's not very likely to get exercised.

There are exceptions that might cause an exercise. If the options are thinly traded which causes a wide spread in the bid/ask then a trader might be better off exercising the option & immediately closing the position rather than trying to sell an option that has a poor bid/ask.

The example below is a stock trading @ 9.38.
The options expire Oct. 18. (markets closed so bid/ask not real accurate)
There's possibility of an exercise if short any call 8 & lower as there's very little premium in the calls.

The 8 is trading with less than .05 premium so could get exercised.
The 9 is NOT likely to be exercised. If I were long the 9 calls, why would I exercise the calls when I could sell them for 9.60 then buy the stock for 9.38? Get it @ .22 cheaper than exercising the calls.

***More professional options traders here might have a better method of doing it. My options trading is mostly in futures so my "opinion" might not be suited as well for equities.
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If you are going to get assigned,its most likely to happen on a deep put after the stock goes ex dividend.

There has another scenario where a trader may exercise his deep put if the interest rebate( interest on the short stock) is greater than the cost of the call option with the same strike/expiry of the Put exercised.

Short stock plus long call equals long put..

We may be getting ahead of ourselves here..
 
The advice no one wants to say but should be highlighted is do not enter into any options position unless you are very familiar with how it works and what to expect. If you do not research the fundamentals then one must question the thought process that went into why you sold the puts to begin with anyway.

It will save you a lot of stress and headache down the road.
 
Hilcrest_trader said:
I have a few CSPs that are ITM. They still have 29 DTE. I'm a relative newbie and I've never had stocks assigned.
  • Can the stocks be assigned at any time or is it more likely to happen in (say) the last 5 days?
  • Are there other criteria I need to consider - like depth ITM? If a CSP is ~10% in the money is it likely to be assigned early.
Anything else I need to consider?

Thanks
More...

The option will not be assigned so long as the premium has time value. Because the option is worth more than the stock.

This has been true for me over 4 years and hundreds of thousands of share contracts. When the time value of the option gets below a nickel, it's time to adjust, unless you want to be assigned.
 
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Options can be assigned at any time but that's not likely if there is time premium remaining because exercising throws away the time premium.

An exception to this is if the time premium of an ITM put is less than the amount of the dividend. Then there's an arb (buy the put and the stock and exercise the put on the ex-dividend date to receive the dividend later).

If an ITM option trades below parity (bid is less than the intrinsic value), the buyer can execute a Discount Arbitrage and that can lead to early assignment. This is not likely with 29 DTE unless very, very deep ITM. FWIW, if long the option, you can do this yourself and avoid the haircut.

And then there's the infrequent noob who just doesn't know that you can sell the option and instead, exercises it to close the position (more likely with calls since the noob isn't likely to be a shorter of the underlying).
 
Hilcrest_trader, the other posters are spot on - most of the time the ITM option won't be exercised early unless it's very deep ITM and there's no time premium left. A little tip to help you - if the opposing option of the same strike is worth a nickel or less, then you're at high risk of being assigned. For instance, if the stock is at $100 and you're short the $105 put, take a look at the $105 call. If it is offered at a nickel, it's time to get ready for possible early assignment.
 
El OchoCinco said:
The advice no one wants to say but should be highlighted is do not enter into any options position unless you are very familiar with how it works and what to expect. If you do not research the fundamentals then one must question the thought process that went into why you sold the puts to begin with anyway.

It will save you a lot of stress and headache down the road.
More...
Such a blindingly obvious but so frequently ignored concept!
 
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