Early assignment on the short leg of a spread?

Quote from adam772:

Anyways, I had a bunch of credit spreads on and didnt realize a dividend was coming on a bunch of them. To be specific, I was short 50 of the SPY calls, 40 of the DIA calls , and 38 of the QQQQ calls going into expiration friday.

The short calls were all exercised Thursday evening cause of the dividend...I woke up friday to find myself long 5000 SPY, 4000 DIA, and 3800 QQQQ. Not a pleasant morning...

I couldn't sell out the position. Had to call ameritrade customer support. they couldnt even sell out the position.. they had to get margin on the phone, who finally gave the OK to clear out the position.
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Your story makes no sense. Exercised calls results in short stock not long stock. And even if it was a typo and you ended up long the shares, even restricted accounts are allowed to make closing equity transactions which incidentlly, reduce margin. You don't need the margin dept's permission for that. And if that's the hoop that Ameritrade makes you jump through in order to close an existing position, get the hell out of Dodge ASAP and transact elsewhere.
 
weird story. almost sounds like they processed the assignments backwards and realized their mistake and shut off accounts so people didn't make the incorrect closing transactions after assignment. If the stock moved against you before you closed it out I hope received some sort of price correction.


Long side of your spreads were OTM?
 
I have started to see a pattern forming on many different options forums about early assignment. Alot of new or inexperienced traders have been looking at Deep ITM options instead of OTM options for spreads. I do not understand why they think that they have an advantage by doing a deep ITM credit spread. You have the same risk/reword as an OTM debt spread without the risks of assignment.

It is either that or the new traders are not taking into consideration divi dates and checking the option values during that time. It is not even that hard to check on most of the index ETF's because they all pay divis on the Friday of expiration, so why do so many have these problems?

They way I look at it is if you have to go ITM to receive a larger credit then it is best just to go out another month and go OTM and either adjust or take the trade off before those options go ITM.
 
I'd guess they aren't checking dividend dates, and a lack of understanding that they're going to be on the hook for that dividend when assigned.
 
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