My OIH Jun 140 naked put was 9 pts ITM 2 days ago and I feared I will get assigned and thus blow up my account. So I bailed out and took a big loss. Now the same option is OTM and I'm kicking myself for taking the loss. How do you assess assignment risk? Should you always be fearful of getting assigned if the naked position is ITM and moving against you?
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How to assess assignment risk when naked goes ITM?
- Thread starter a529612
- Start date
Quote from a529612:
My OIH Jun 140 naked put was 9 pts ITM 2 days ago and I feared I will get assigned and thus blow up my account. So I bailed out and took a big loss. Now the same option is OTM and I'm kicking myself for taking the loss. How do you assess assignment risk? Should you always be fearful of getting assigned if the naked position is ITM and moving against you?
If the price of corresponding call is less than the cost of carry on the stock then the put will be assigned. As you get closer to expiry and deeper ITM the risk increases.
Quote from a529612:
Not sure if I follow you. Can you elaborate? Shouldn't the corresponding call be always less than the cost of carry on the stock? Thanks!
No, the call is usually more than the cost of carry because of time value, but when time value gets to virtually zero then you can get cost of carry to be more than the call.
or use the simple rule of thumb, is there any premium left in it? if a person can sell it for more than he would get for exercising it, then why would he?
Next time perhaps you can trade the index, Euro-style:
http://www.cboe.com/Products/indexopts/oix_spec.aspx
http://www.cboe.com/Products/indexopts/oix_spec.aspx
Quote from GoldmanSax:
or use the simple rule of thumb, is there any premium left in it? if a person can sell it for more than he would get for exercising it, then why would he?
I had 1 ITM put contract exercised on me last week. I guess maybe the owner had some stock he wanted to get rid of.
How do they figure who will get assigned?
Is the selection random broker, who then randomly selects a client?
Is the selection random broker, who then randomly selects a client?
Yes, you are essentially correct:
The OCC randomly selects clearing firm for assignment notice.
The clearing firm then randomly selects individual account for assignment.
The OCC randomly selects clearing firm for assignment notice.
The clearing firm then randomly selects individual account for assignment.
Quote from forex-forex:
How do they figure who will get assigned?
Is the selection random broker, who then randomly selects a client?