Question regarding options expiration

T

TulsaTrader

Last week, I sold a $51 put on the XOP ETF. Today about about 30 seconds before the close I went ahead and sold the $51 call that expires next Friday. The XOP closed at 50.85.

I don't own any XOP shares but I'm expecting to have them assigned to me since it closed below the put strike price.

Would you consider this a naked short call position? I'm thinking it's not because the shares will be assigned to me.

Is it theoretically possible that the XOP could move up above $51 after hours causing my PUT to not be assigned and leaving me with a naked short call?

Thanks,
TT
 
TulsaTrader said:
Last week, I sold a $51 put on the XOP ETF. Today about about 30 seconds before the close I went ahead and sold the $51 call that expires next Friday. The XOP closed at 50.85.

I don't own any XOP shares but I'm expecting to have them assigned to me since it closed below the put strike price.

Would you consider this a naked short call position? I'm thinking it's not because the shares will be assigned to me.

Is it theoretically possible that the XOP could move up above $51 after hours causing my PUT to not be assigned and leaving me with a naked short call?

Thanks,
TT
More...

Your broker will consider it a naked call today however Monday it will look like a Buy write, assuming you get assigned.
 
Thanks for the reply.

So the price at the exact close is used to determine assignment not some after hours price?

In theory I could end up with a naked call if I don't get the shares assigned. So far I've never seen that happen and I've sold quite a few puts over the years, so it must be a rare occasion.

TT
 
The close on the primary exchange is used to determine automatic exercise. The buyer of the option always has the ability to file an exception. That means they can issue instructions to their broker to exercise options that expire OTM or issue instructions to not exercise options ITM. There are many reasons why someone would do this. I would guess the most common reason is after market activity that makes it profitable to do something different from the automatic procedure.I would guess the next most common reason is lack of funds to exercise an ITM options, where Monday would cause a margin call or excess risk.

Bob
 
Thanks again for the reply.

I just wanted to make sure I properly understood my risk in selling the calls before I got the shares assigned.

TT
 
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