Question on short strangle and exercise option

[Robert Morse]

This is for the situation where he gets assigned prior to expiry.

Well then he has to then report the trades according to IRS rules. There is no choice involved.

 

[elt894]

Well then he has to then report the trades according to IRS rules. There is no choice involved.

If he buys new shares with T+1 settlement he can deliver those instead. The IRS would also allow buying with T+2 settlement and shorting against the box for a day, but most brokers don't support that.

 

[Robert Morse]

If he buys new shares with T+1 settlement he can deliver those instead. The IRS would also allow buying with T+2 settlement and shorting against the box for a day, but most brokers don't support that.

And he can do that after being assigned?

 

[elt894]

And he can do that after being assigned?

That's my understanding, and it's what IB describes in the link in my first post. The wording in the tax law about holding periods always references delivery date, not trade date.

 

[izzae]

Interesting - thanks for the additional info and my apologies for not chiming back in until just now - I missed the email notification of new comments on this thread.

Regarding Robert Morse's suggestion to exit or roll the option - I need to look into and learn more about rolling options. Again I'm just learning about trading options through reading and trial and error. I did end up exiting the option because the stock price was hovering around the strike price on Friday afternoon and I didn't want to get assigned. However, by the end of the day the option expired worthless and I would've been better off just letting it ride.

To elt894's point about placing a T+1 order after receiving the assignment notification - the example given is for early assignment. Is it also possible to do this after expiration? So if the option expires on Friday after close and I am assigned, can I purchase T+1 shares on Monday morning?

 

[Robert Morse]

However, by the end of the day the option expired worthless and I would've been better off just letting it ride.

You can't look at it that way. You need to have some discipline and not look back.

 

[izzae]

I'm not looking back to regret my decision but just as an opportunity to learn more. And I sincerely appreciate the sentiment and advice and the knowledge being shared.