Short strangle legs were assigned even though price of underlying stayed within the price bounds?

stochastix

stochastix

I put a short strangle on QQQ last week. That is,
I sold
Aug28'20 294 PUT @-7.92
Aug28'20 280 CALL @-60.60

Yesterday QQQ closed at 292.53

I thought all was good but I login to my IB account and see that at 4:37 this morning
both legs were assigned. How the hell does this happen? I thought the entire point of a short
straddle is that you keep the premium if the underlying stays within the strangle.

jesus tap dancing christ, I should have sold the put at the lower strike price and the call at the higher strike price. How the fuck does IB not warn people about that? It said "short straddle" so I thought I entered it correctly, god dammit. oh well, it was a breakeven instead of a loss.
 
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A short strangle consists of selling a PUT and a CALL that are both OTM! You sold both ITM per your post. Did you instead think you were selling the 280 PUT and the 294 CALL?
 
They were assigned because obviously both legs were in the money at expiration.
Brokers automatically exercise if option in ITM at least 0,01 at expiration day.
To keep any premium you should have bought to close.
 
stochastix said:
I put a short strangle on QQQ last week. That is,
I sold
Aug28'20 294 PUT @-7.92
Aug28'20 280 CALL @-60.60

Yesterday QQQ closed at 292.53

I thought all was good but I login to my IB account and see that at 4:37 this morning
both legs were assigned. How the hell does this happen? I thought the entire point of a short
straddle is that you keep the premium if the underlying stays within the strangle.

jesus tap dancing christ, I should have sold the put at the lower strike price and the call at the higher strike price. How the fuck does IB not warn people about that? It said "short straddle" so I thought I entered it correctly, god dammit. oh well, it was a breakeven instead of a loss.
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lol you shorted the guts. Ostensibly bc you thought the premium was better. It is, but it's equivalent to the 280P/294C outside strangle.

IB is not an educational service, they are a discount broker, and what does it matter? It netted to zero position. You shorted the outside for pennies.
 
lmao, im an idiot. Yes, broke even. I know IB is discount.. but thats an easy thing for the software to notice when you are using the option strategy thing.. well, now I know
 
stochastix said:
What do you mean? If I entered the position correctly I would have made a 7K profit
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I don't know what you did. Legged, whatever. My point is that if the outside strangle is at pennies then it's probably not worth working either strangle. Where was the outside strangle when you sold the inside? What was the price of the 280P/294C? No way it was worth $7K written. To short that size you'd need millions.
 
On Aug 26th I
sold 5 aug28th'20 294 Puts for 6.88 and
sold 5 aug28th'20 280 Calls for 5.24

So thats what I thought was the premium.. i dont know what the prices were for 294 calls and 280 puts at the time, but what you say makes sense now
 
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