Sell put itm on ETF SPY

[arcane73]

Good morning,

Sorry for my English but I am a French investor.

Yesterday I sold an ITM strike 520 put on ETF Spy.

The spy price was around 476.

The put only had intrinsic value and a small time value.

This morning, I was very surprised.

I was assigned to the sold option and found myself long 100 SPY at the average price of 520.

This doesn't change the direction of the market but my cash went negative at IB following the purchase at 520 x 100 = $52,000.

I have the impression that all ITM sold puts are executed automatically.

I don't know how to avoid this. I would like to hedge my position by holding the put.

I thought about selling a put on the MES future contract but since delivery is in cash, I'm afraid of being assigned too automatically.

Thank you to US market traders for giving me their opinion.

 

[Robert Morse]

You were assigned an option with no premium because the cost of carry for the long is too high. Why would you sell that to open in the first place?

 

[mervyn]

hope you collected nearly 44 buck and wait until spx rocket to 520…

 

[Quanto]

Good morning,

Sorry for my English but I am a French investor.

Yesterday I sold an ITM strike 520 put on ETF Spy.

The spy price was around 476.

The put only had intrinsic value and a small time value.

This morning, I was very surprised.

I was assigned to the sold option and found myself long 100 SPY at the average price of 520.

This doesn't change the direction of the market but my cash went negative at IB following the purchase at 520 x 100 = $52,000.

I have the impression that all ITM sold puts are executed automatically.

I don't know how to avoid this. I would like to hedge my position by holding the put.

I thought about selling a put on the MES future contract but since delivery is in cash, I'm afraid of being assigned too automatically.

Thank you to US market traders for giving me their opinion.

You can trade the options of XSP (mini SPX) instead of SPY.
Unlike SPY, XSP is European Style and Cash Settled, ie. an Early Exercise/Assignment is not possible.
More info here: https://www.cboe.com/tradable_products/sp_500/mini_spx_options/

Benefits of XSP Options
Cash Settlement & European Exercise
Trading account credited/debited in cash, no delivery of unwanted shares or market exposure. European style is only exercised at expiration, eliminating risk of early assignment
Learn More

 

[stepandfetchit]

If what occurred is not to your liking, close your position ASAP for a quick profit!
Do not understand why you are surprised.

 

[arcane73]

I want to have a long position on the spy.

The price is at 480. I buy 500 shares.

So 480 x 500 = $240,000 to be debited from my account.

Otherwise, I sell 5 ITM puts at delta 1 with no time value.

It comes down to the same thing.

However, this only costs me $15,000 in margin and increases my cash flow.

I will try to take the same position on the SPX or XPS index but the spread is very wide.

Thank you for your answers.

 

[Robert Morse]

Or you can buy one ES future and the margin is only $11,800. I’d say you can do that with an account of $15k.

I want to have a long position on the spy.

The price is at 480. I buy 500 shares.

So 480 x 500 = $240,000 to be debited from my account.

Otherwise, I sell 5 ITM puts at delta 1 with no time value.

It comes down to the same thing.

However, this only costs me $15,000 in margin and increases my cash flow.

I will try to take the same position on the SPX or XPS index but the spread is very wide.

Thank you for your answers.

 

[stepandfetchit]

I want to have a long position on the spy.

The price is at 480. I buy 500 shares.

So 480 x 500 = $240,000 to be debited from my account.

Otherwise, I sell 5 ITM puts at delta 1 with no time value.

It comes down to the same thing.

However, this only costs me $15,000 in margin and increases my cash flow.

I will try to take the same position on the SPX or XPS index but the spread is very wide.

Thank you for your answers.

You seem to be interested in capturing the "tiny" Extrinsic value, then hold at large capital expense. Have you considered instead just placing a synthetic long position to maintain your interest in a long position without having to do daily trades? Say, if you are very bullish, you can keep your cash position positive, buy moving your strike price a tad above the Spot, and picking a duration to your liking. This is a TOS risk plot of placing a long SPY synthetic using the 490 Strike (to get a small credit on entry) using the April expiration (picked time at random).

BTW: you still have assignment risk here! If you can stomach/tolerate a 10-lot instead of a 5-lot, consider doing this on SPX to remove the assignment risk! (1-lot on SPX)

 

[stepandfetchit]

FWIW: Here is same thing but using SPX (2x size of that SPY).

 

[tradegoodstocks]

You seem to be interested in capturing the "tiny" Extrinsic value, then hold at large capital expense. Have you considered instead just placing a synthetic long position to maintain your interest in a long position without having to do daily trades? Say, if you are very bullish, you can keep your cash position positive, buy moving your strike price a tad above the Spot, and picking a duration to your liking. This is a TOS risk plot of placing a long SPY synthetic using the 490 Strike (to get a small credit on entry) using the April expiration (picked time at random).View attachment 332176

BTW: you still have assignment risk here! If you can stomach/tolerate a 10-lot instead of a 5-lot, consider doing this on SPX to remove the assignment risk! (1-lot on SPX)

A synthetic long position is effectively the same as a long futures position, right? I think buying /ES futures is more efficient to accomplish this exposure, due to lower bid/ask spreads.