exercise/assignment: what to do

H

hedgex

When my short call became ITM on expiry day, I thought I would buy to close the position. But the ask price price was 1% over the intrinsic value. I figure it would cost less if I just buy the stock to neutralize the assignment. Is this generally true?

With spreads, if both legs are ITM or OTM, the exercise/assignment should cancel each other out and I don't need to do anything. If one leg is ITM, I would buy/sell stk to neutralize the ITM option. It's cheaper to trade stocks as they are more liquid.

Is this what people do?
 
Yep, that's generally true.

Only concern you may have is pin risk when you're right around the strike, in case the options aren't exercised the way you expect... and that might mean you're left holding an unexpected long/short position in the underlying. I personally just accept pin risk, and usually hedge with the underlying instead of closing out the option position.
 
You must log in or register to reply here.
Back
Top