opt789Quote from opt789:
I'm sorry, and I am not trying to be negative - just trying to help, but you are being far too simplistic. Options are based on math and you need to understand that math if you trade them. Market makers do not exercise "for whatever reason" they do it when, and exactly when, it make financial sense to do so as I explained in my post.
Coolguy17,
If you do not understand my post, you may want to learn more about options before trading them. Are you aware that, depending on the stock and the strike, there are many ITM Puts that will be exercised as soon as you sell them?
Thanks opt789, I appreciate the time you took and your feedback and the formula.Quote from opt789:
db,
I have watched so many people lose money trading I always feel obligated to tell retail option traders to not trade options until they really understand them and have the tools to properly value them.
(Strike)*(Interest rate)/365*(days to expiration)-(dividends)
Is this greater than the value of the corresponding Call? If so then it makes sense to exercise the Put. The key here is the interest rate: is the market maker net long or short the stock, does he have good or bad rates, is the stock hard to borrow, etc.
But you are essentially correct for a rule of thumb, if there is time value left in the Put it is probably not going to be exercised. You are also correct that most retail traders would never use a deep in the money Put.
Quote from opt789:
db,
I have watched so many people lose money trading I always feel obligated to tell retail option traders to not trade options until they really understand them and have the tools to properly value them.
(Strike)*(Interest rate)/365*(days to expiration)-(dividends)
Is this greater than the value of the corresponding Call? If so then it makes sense to exercise the Put. The key here is the interest rate: is the market maker net long or short the stock, does he have good or bad rates, is the stock hard to borrow, etc.
But you are essentially correct for a rule of thumb, if there is time value left in the Put it is probably not going to be exercised. You are also correct that most retail traders would never use a deep in the money Put.
Quote from gkishot:
Please advise whether long call/short put combos with positive time premium can be assigned early?
You are making it too complicated. If you are short a Put, then you are short a Put, it does not matter what else you have, or when/why/how you did the trade. If the Put is an exercise candidate, per the formula I outlined, then you may be assigned. That is pretty much all there is to it.Quote from gkishot:
But if I am shorting put and buying call at the same time and with the same strike price would not that mean that I am paying the carry interest to market maker with my long call? Shouldn't the market maker be holding this short put/long call combo till the expiration even if the premium of the put goes down to 0 without him having it assigned? The cost of carry of the combo is call premium - put premium > 0. Shouldn't the cost of carry ( if it's positive as in the case of long call/short put combo) be predetermined all the way from the time the contract was bought until it's expiration? I believe that the only contracts that can be assigned early are the ones that have a negative time premium ( cost of carry ). For example short calls and short puts can be assigned early. Please advise whether long call/short put combos with positive time premium can be assigned early?
Quote from commiebat:
Only short positions can get assigned. Long positions are yours to exercise as you see fit.
Theoretically, any short option can be assigned at any time, but in practice you will only be assigned when it is more profitable for the option holder to exercise than to sell.