SPY/IWM Traders - have you ever been assigned on a short option before expiration?

D

darkshogun

Have you ever been assigned on a short ITM option on SPY or IWM before expiration? What strategy were you trading and how did you handle it?

In general terms, how risky are options on these 2 ETFs 2 to 3 weeks before expiration if your strategies involve spreads with short ITM options?
 
darkshogun said:
Have you ever been assigned on a short ITM option on SPY or IWM before expiration? What strategy were you trading and how did you handle it?

In general terms, how risky are options on these 2 ETFs 2 to 3 weeks before expiration if your strategies involve spreads with short ITM options?
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SPY call vertical assigned on the Thursday before expiration because it was XD on Friday if I recall, been a while now. I was new to options and didn't think to check about dividends for SPY.

I was more pissed off being stuck with the dividend than anything. Price was down in the pre-market, I closed the long for a profit on the open and waited for price to fall further before covering the short.

Only damage was to the ego for making a beginners mistake.
 
As to your question about 2-3 weeks before expiration, I once put on a TLT put vertical 5 weeks before expiration. I didn't buy it on the front month because I expected price to move down, but not within a week. Long 114 put, short 111.

Both legs were ITM within a week or so and price moved down to a low of 105+ or thereabouts. Over the next 3 weeks price moved back up to 109 or so.

I took it all the way to expiration without being assigned early.

It was the last vertical I bought. McMillan is right, if you have directional conviction don't limit your profits by buying a vertical.
 
If your short options become ITM, you can be assigned. Assignment by itself is not a bad thing - unless it causes a margin call and forced liquidation. Unless the options are really deep ITM and there is very little time left, you will actually keep some of the time value left in those options.
 
SteadyOptions said:
If your short options become ITM, you can be assigned.
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(a) I certainly hope that you are talking about short calls (except in some really extreme cases)
(b) there is an easy way of predicting when you are going to get early assignment
(c) if someone assigns you on your short puts early, it's a windfall (i.e. a good thing)
 
sle said:
(a) I certainly hope that you are talking about short calls (except in some really extreme cases)
(b) there is an easy way of predicting when you are going to get early assignment
(c) if someone assigns you on your short puts early, it's a windfall (i.e. a good thing)
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Well, theoretically you can be assigned on both puts and calls, but I agree that being assigned on the calls is more common because of the dividend. However, I was assigned on the puts as well when they became deep ITM - I was actually glad because I gained the remaining time value for free and avoided some slippage (the spreads were a bit wide on the options, but much tighter on the stock).
 
The biggest problem with assignment is having to deal with the slippage and commissions after assignment. If your short is in the money at all it's a problem from the start since you'll start to lose Theta the more it goes ITM. What type of spread are you trading ?
 
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