Selling ITM options . . .

[poorboy]

For those of you who have a lot of options selling experience.
If you sell an option that is already ITM, on average how soon does it get exercised?
Or does it have more to do with getting close to expiration?
Do ITM options ever expire without getting called?

 

[Robert Morse]

If you are asking about equity options, there are few reasons why you get early assigned or may want to consider early exercise. Here are three.

-A dividend that has more value than the value of the put on the same strike.
-A stock that is so hard to borrow that the owner of the call uses it to cover a short stock position before a buy-in or to avoid high charges.
-corporate event like a dutch auction where the common has value that the option does not.

 

[R123]

On equity options there is no average time to early assignment, it is dependent on lack of "time value" left in the option .
If your option bid price plus the stock price you wrote are lower even by a few cents than strike you are in the vulnerable zone.
On a few rare cases a stock I wrote options on, went into a free fall and I have been early assigned months before expiration to my advantage . This probably the short covering Robert explained so well above.

 

[JSOP]

On equity options there is no average time to early assignment, it is dependent on lack of "time value" left in the option .
If your option bid price plus the stock price you wrote are lower even by a few cents than strike you are in the vulnerable zone.
On a few rare cases a stock I wrote options on, went into a free fall and I have been early assigned months before expiration to my advantage . This probably the short covering Robert explained so well above.

OMG!!! Whoever exercised that call was DUMB!!! If the stock was in free fall, he/she could've bought that stock back at much lower price on the market rather than exercising even with the interest charges and etc. And this is the only time prob. that this investment is not a zero-sum game. Your option would've expired worthless so you got the premium and the option buyer could've bought the stock back covered its short at much cheaper price and earned a bigger gain and everybody goes home happy. But exercising that call was ridiculous!! That was like literally giving away money!! You must've gotten a windfall!! Lucky you!!

In any event, it's NEVER a good idea to get assigned because what you are losing is the opportunity cost because you could've always bought/sold the underlying cheaper/more expensive UNLESS you are looking to invest in the stock for the long term and you want to be in on the stock at cheaper price and not pay commission and you want to earn some premiums so you wouldn't mind get assigned on the Put. That is the only case in which it make a bit more sense to want to get assigned. Majority of the case, you are supposed to avoid to get assigned and that's way ITM options are priced so high although it's not economically advantageous for anyone to exercise early one's options either except in a VERY few specific scenarios most to do with capturing EXTREMELY lucrative dividends in the case of exercising a Call and selling stocks ex-dividend in the case of exercising a Put BUT people still do it. There is a sucker born every minute.