Have you ever got any early assignments?
- Thread starter OddTrader
- Start date
You are asking all the wrong questions.
How many times per year? If I say '6,' what does that tell you?
And I just love your first question. You want to know WHY we have NOT received early assignment notices. As dumb as that question is, I have the reply: Because most option owners are not ignorant and they do not exercise early.
Mark
Some interesting comments can be read in this thread:
"Covered Calls Questions"
http://www.elitetrader.com/vb/showthread.php?s=&threadid=175439
+1
"Covered Calls Questions"
http://www.elitetrader.com/vb/showthread.php?s=&threadid=175439
+1
"Options Assignment Questions"
http://www.888options.com/help/faq/assignment.jsp?prt=nyse#6
Quote
Q: I was assigned on my March 40 put option when the stock value went below $38, even though it wasn't expiration. On another stock, I had a covered write position where I was short a 70 call which went in-the-money by $7, and the call wasn't assigned until expiration day. How can I tell when I will be assigned?
A: The short answer is that you can never tell when you will be assigned. Once you sell an option (put or call), you have the potential for being assigned to fulfill your obligation to receive (and pay for) or deliver (and get paid for) shares of stock on any business day. In some circumstances, you may be assigned on a short option position while the underlying shares are halted for trading, or perhaps while they are the subjects of a buyout or takeover. To ensure fairness in the distribution of equity and index option assignments, The Options Clearing Corporation utilizes a random procedure to assign exercise notices to the accounts maintained with OCC by each Clearing Member. The assigned firm must then use an exchange approved method (usually a random process or the "first-in, first-out" method) to allocate those notices to accounts which are short the options.
Having said that, there are some generalizations which might help you understand when you might be more likely to be assigned on a short-option position.
* Only about 12% of options end up being exercised; the percentage hasn't varied much over the years. That does not mean that you can only be assigned on 12% of your short option, however. It means that, in general, option exercises are not that common.
* The majority of option exercises (and the corresponding assignments) take place as the option gets closer to expiration. Without getting into the math too much, it usually doesn't make sense to exercise an option, which has any time premium over intrinsic value. For most options, that doesn't occur until close to expiration.
* In general terms, a put which goes in-the-money is more likely to be exercised than a call which goes in-the-money. Why? Think about the result of an exercise. An investor who exercises a put uses it to sell shares and receive cash. A person exercising a call option uses it to buy shares and must pay cash. People are more likely to exercise options if it means they can receive cash sooner. The opposite is true for calls, where exercise means you have to pay cash sooner.
The bottom line is that you really don't have any sure-fire way to predict when you will be assigned on a short option position; it can happen any day the stock market is open for trading.
Unquote
http://www.888options.com/help/faq/assignment.jsp?prt=nyse#6
Quote
Q: I was assigned on my March 40 put option when the stock value went below $38, even though it wasn't expiration. On another stock, I had a covered write position where I was short a 70 call which went in-the-money by $7, and the call wasn't assigned until expiration day. How can I tell when I will be assigned?
A: The short answer is that you can never tell when you will be assigned. Once you sell an option (put or call), you have the potential for being assigned to fulfill your obligation to receive (and pay for) or deliver (and get paid for) shares of stock on any business day. In some circumstances, you may be assigned on a short option position while the underlying shares are halted for trading, or perhaps while they are the subjects of a buyout or takeover. To ensure fairness in the distribution of equity and index option assignments, The Options Clearing Corporation utilizes a random procedure to assign exercise notices to the accounts maintained with OCC by each Clearing Member. The assigned firm must then use an exchange approved method (usually a random process or the "first-in, first-out" method) to allocate those notices to accounts which are short the options.
Having said that, there are some generalizations which might help you understand when you might be more likely to be assigned on a short-option position.
* Only about 12% of options end up being exercised; the percentage hasn't varied much over the years. That does not mean that you can only be assigned on 12% of your short option, however. It means that, in general, option exercises are not that common.
* The majority of option exercises (and the corresponding assignments) take place as the option gets closer to expiration. Without getting into the math too much, it usually doesn't make sense to exercise an option, which has any time premium over intrinsic value. For most options, that doesn't occur until close to expiration.
* In general terms, a put which goes in-the-money is more likely to be exercised than a call which goes in-the-money. Why? Think about the result of an exercise. An investor who exercises a put uses it to sell shares and receive cash. A person exercising a call option uses it to buy shares and must pay cash. People are more likely to exercise options if it means they can receive cash sooner. The opposite is true for calls, where exercise means you have to pay cash sooner.
The bottom line is that you really don't have any sure-fire way to predict when you will be assigned on a short option position; it can happen any day the stock market is open for trading.
Unquote
Yes, many times.
I use a strategy with DITM options and will get early assignments from time to time. I try to avoid that by checking the OI but when the underlying moves against me, it is almost a certainty that I will be assigned early. The funny thing about this strategy is that while it would seem that the early assignment should always be detrimental (and it is not what I want) I am sometimes still able to profit despite the early assignment.
There is no one way to do anything. Here is how I look at it. I think those that have some knowledge are well meaning when they try to tell what to do and what not to do but unfortunately it tends to only come from their own (limited, and limited does not mean # of years) experience.
If there was only one way (or just a few ways) to conduct (successful) options trading, then there shouldn't be the need for any more books and everyone should make money but it doesn't work that way. The problem IMO with most option literature is that it is just a rehash of previous option literature with the same chapter missing, the chapter on how to use options to actually make money in the market.
Here is how I would start that chapter (and realize this is just one way of many, not the only way): Treat options trading like gambling because IMO that is exactly what it is. The objective in gambling is to collect more on your winning wagers than you lose on your losing wagers. If someone who is currently unsuccessful with options trading would take a moment to look at their trading that way, I think it would be a tremendous help to their figuring out what they need to do.
From what I read and hear, it appears that most want to "adjust" their way to profits. I don't say that it can't be done that way, I just think that most only get themselves deeper in the hole trying to "adjust" and it gets them in the mindset that every trade should be a "winner". If you think like a gambler, you know that you cannot "win" all of your "wagers" and you will let a bad situation go (bankroll preservation) in favor of a new opportunity. The trick here (and not a simple trick) is to find an "edge". Something that when you repeat it over and over gives you the ability to collect more from your winning trades than you lose on your losing trades. It's that simple!
Joe.
Here is a 13-page pdf "Should I Worry About Early Assignment":
http://mediaserver.thinkorswim.com/transcripts/aug1705_early_assignment.pdf
Q
thenakedtrader: yes seven, early assignment... options exercised against me
UQ
Also a page about "Exercise and Assignment, Early or Otherwise":
https://www.thinkorswim.com/tos/displayPage.tos?webpage=lessonExercise
Q
When should you think about exercising a long equity option? When are you at risk of assignment if you are short an option? There is a specific economic rationale for exercising an equity option. Simply, is it cheaper to own the option, or to exercise the option? There are numerous academic treatises that discuss early-exercise, and reading them can be useful. But how an academic looks at early-exercise and how an option trader looks at early-exercise can be different.
UQ
http://mediaserver.thinkorswim.com/transcripts/aug1705_early_assignment.pdf
Q
thenakedtrader: yes seven, early assignment... options exercised against me
UQ
Also a page about "Exercise and Assignment, Early or Otherwise":
https://www.thinkorswim.com/tos/displayPage.tos?webpage=lessonExercise
Q
When should you think about exercising a long equity option? When are you at risk of assignment if you are short an option? There is a specific economic rationale for exercising an equity option. Simply, is it cheaper to own the option, or to exercise the option? There are numerous academic treatises that discuss early-exercise, and reading them can be useful. But how an academic looks at early-exercise and how an option trader looks at early-exercise can be different.
UQ
According to Allaire (The Options Strategist, page 101), âCalls are rarely exercised early and are therefore rarely assigned early, except when a dividend enters into the equation.
...
and that puts tend to get exercised early much more often than calls. This simply means that the risk of early assignment is somewhat higher with short puts than it is for short calls, and it is also more difficult to estimate when it will happen. "
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and that puts tend to get exercised early much more often than calls. This simply means that the risk of early assignment is somewhat higher with short puts than it is for short calls, and it is also more difficult to estimate when it will happen. "