George and others:
By setting-up a spread trade which sees my "SELL" contract portion already ITM money upon initial execution, this is why I need to know all potential outcomes until final expiration.
"Exercising / Assignment" :
Traders will be constantly buying/selling their options contracts until expiration - Yet what actually constitutes an assignment? In other words:
To open my initial spread, I 'SELL' an option. That option is executed by the broker. I have (within the spread) another purchased option which is to 'cover' the one I sold within a certain range.
- What happens during the life of the option if the exact contract that I sold was to be 'assigned?'
- How does my broker know to pin-point my account for this assignment?
- What is the process at this point? Will my broker's platform automatically execute a "BUY" option at the strike-price where I "SOLD" the original contract? Does he buy physical shares? Does it all happen instantaneously?
- Are spread trades executed by a broker as '1' trade and therefore , if called, will close the entire trade? Will my original "BUY" contract that was paired with the spread from the beginning be closed as well?
- If 'Adjustment' is a better option, how would this work to hopefully keep the trade open until expiration?
- By choosing a particular expiration time-frame (less than 30 days, for example) which dose not include a dividend or earnings report to be announced within said time-frame, would that greatly reduce the chances of an early assignment?
I want to understand step-by-step, (A-Z) what happens should my trade fall into this predicament. I am a passive trader and have no chance to monitor trades during the week.
Thanks everyone.
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@Nazzdack: This is a 'newbie' question because I am new to the intricacies/mechanics of options trading - not trading in general. I believe I had a profile here on this forum years ago but lost my log-in info - so I set-up a new account. No big deal...