since you provided very helpful information in the previous reply, may I know what evidence can I provide to convince you?
My ITM short option was not assigned
- Thread starter jerron
- Start date
You own the stock, and you sold a call. The call expired in the money, so you expected an assignment. You expected the stock to be sold at the strike price of your short call.
Am I getting this right?
Instead, for some bizarre reason, the holder of the call chose not to exercise it.
So you still own the stock, which is now worth more than the strike price, and you get to keep the premium you collected when you sold the call.
How did you lose money?
Did the stock gap down overnight? Waaaay down, below what you paid for it? And you lost so much money that it was more than the premium you got when you sold the call?
Am I getting this right?
Instead, for some bizarre reason, the holder of the call chose not to exercise it.
So you still own the stock, which is now worth more than the strike price, and you get to keep the premium you collected when you sold the call.
How did you lose money?
Did the stock gap down overnight? Waaaay down, below what you paid for it? And you lost so much money that it was more than the premium you got when you sold the call?
Yes. You can think this way: my portfolio had only -10 such naked options. After the market close, I expected it would bring me -1000 stock so I bought stock out of the regular trading hour. At the end of Friday my porfolio was with +1000 stocks and -10 ITM options.
But on Sunday I found the options were expired without assignment. So my portfolio was with +1000 stocks.
And at the Monday market open, the stock price dropped below 450. And I got loss when I tried to maintain delta neutral again.
I still find it ridiculous and utterly incomprehensible that anyone would instruct their broker not to exercise a call that far in the money.
Or sell the call. In the name of all that is holy, if you don't want to buy the stock, then sell the f**king call.
I'm not saying it didn't happen. If your broker told that's what happened, then it happened.
But I think it was a mistake--the type of mistake that cannot be corrected or fixed.
Either the holder of the options was a noob who did not know what the f**k they were doing...
or there was some sort of human error, such as a data entry error...
or there was a glitch in some algorithm that the account holder was using to manage the account.
Or something like that.
I believe that this type of error is extraordinarily rare and infrequent.
Or sell the call. In the name of all that is holy, if you don't want to buy the stock, then sell the f**king call.
I'm not saying it didn't happen. If your broker told that's what happened, then it happened.
But I think it was a mistake--the type of mistake that cannot be corrected or fixed.
Either the holder of the options was a noob who did not know what the f**k they were doing...
or there was some sort of human error, such as a data entry error...
or there was a glitch in some algorithm that the account holder was using to manage the account.
Or something like that.
I believe that this type of error is extraordinarily rare and infrequent.
Here are my follow up questions and the answer from IB:
XXXXX 2023/10/09 12:00:30
What is the latest time that the counter party could decide not to exercise an ITM option? And what is the earliest time I (the short position holder) can be notified that I would be the victim?
XXXXX 2023/10/09 12:09:37
Also, you mentioned "American style options". Are you indicating for European options the long position holder can't choose not to exercise?
IBCS 2023/10/09 12:24:03
Dear XXXXX,
Stock options are always American style. Choice to exercise by exception or lapse (do not exercise).
Index options are mostly European style, no choice to exercise by exception or lapse.
Every broker dealer has a cut off time for exercise instructions. IBKR's cut off is 17:30 NYC time.
The earliest to know of an assignment is the following day.
When you short an option, you have obligations to receive or deliver stock based on the long holder with whom you are matched at the OCC. That is a random process.
Regards,
What is the latest time that the counter party could decide not to exercise an ITM option? And what is the earliest time I (the short position holder) can be notified that I would be the victim?
XXXXX 2023/10/09 12:09:37
Also, you mentioned "American style options". Are you indicating for European options the long position holder can't choose not to exercise?
IBCS 2023/10/09 12:24:03
Dear XXXXX,
Stock options are always American style. Choice to exercise by exception or lapse (do not exercise).
Index options are mostly European style, no choice to exercise by exception or lapse.
Every broker dealer has a cut off time for exercise instructions. IBKR's cut off is 17:30 NYC time.
The earliest to know of an assignment is the following day.
When you short an option, you have obligations to receive or deliver stock based on the long holder with whom you are matched at the OCC. That is a random process.
Regards,
Just skimming the thread...I could be wrong. It seems that whoever owns the option, has the RIGHT to exercise that option. But, they are NOT OBLIGATED to exercise it.
Like others have said...It could be not wanting capital gains (long or short term, taxes), death (with no instructions on exercising the option), forgot (stupid), fill in the blank.
I had an options that closed at the money ATM (about 20 years ago). The buyer didn't want to exercise (a loss when you added the commission)...So I kept the stock.
Like others have said...It could be not wanting capital gains (long or short term, taxes), death (with no instructions on exercising the option), forgot (stupid), fill in the blank.
I had an options that closed at the money ATM (about 20 years ago). The buyer didn't want to exercise (a loss when you added the commission)...So I kept the stock.