Option Assignment Question

[frcrilly]

Hi All,

I am testing a strategy on a simulator and I need opinions on the below real life scenario which is not possible to test on a simulator.

Say I have sold a 4 week to expiration Bull Put Spread and the market crashes significantly (say it falls considerably below the lower limit of my spread).

In the real world, is it highly likely that I would be very quickly assigned in this scenario? Assignment is certainly more likely as you get closer to expiration but is it also more likely when option in question goes significantly into the money, even if expiration is a considerable time period away?

[To simplify my question, will a 1987 Black Monday virtually guarantee a previously slightly out of the money put option to be assigned before the end of the days trading?]

Any help with the above would be greatly appreciated. Thanks in advance for all responses.

 

[probe1957]

I have been assigned a few times but never early. Once my strike went deep ITM about a week prior to expiration but even then I wasn't assigned until expiration.

 

[newwurldmn]

Quote from frcrilly:

Hi All,

I am testing a strategy on a simulator and I need opinions on the below real life scenario which is not possible to test on a simulator.

Say I have sold a 4 week to expiration Bull Put Spread and the market crashes significantly (say it falls considerably below the lower limit of my spread).

In the real world, is it highly likely that I would be very quickly assigned in this scenario? Assignment is certainly more likely as you get closer to expiration but is it also more likely when option in question goes significantly into the money, even if expiration is a considerable time period away?

[To simplify my question, will a 1987 Black Monday virtually guarantee a previously slightly out of the money put option to be assigned before the end of the days trading?]

Any help with the above would be greatly appreciated. Thanks in advance for all responses.

Unlikely in this environment. I have been early assigned on ditm puts as recently as a week ago (in WAG). But in reality this makes little sense for anyone with interest rates where they are. The only reason to early exercise a deep in the money put is because the cost of carry for delta hedged position is very high (the price of the stock + the premium for the put).