Weekly Option Assignment?

severdog · Jan 28, 2011

Lots of buzz about weekly options these days. I've traditionally been an OTM option seller on the SPY/IWM, and if I have to go closer to the money for better risk/reward, I'll use a european-settled option like the XSP or SPX/RUT to avoid any issues with early settlement.

Has anyone had any problems with an early assignment on an American-settled weekly option? My attitude thus far has been "if it can happen, it will happen, and at the worst possible time".

Thanks in advance..........Craig

ForexForex · Jan 28, 2011

You have nothing to worry about - Just sell if the option reaches ATM, which is what you probably do anyway.

severdog · Jan 28, 2011

Quote from ForexForex:

You have nothing to worry about - Just sell if the option reaches ATM, which is what you probably do anyway.

No. With these strategies you are playing hand-hand combat with the price since the strikes are so close to the money. I would expect to see the short options ITM during the normal course of the trade, which is why I am concerned with early assignment.

Trader13 · Jan 12, 2012

Quote from severdog:

No. With these strategies you are playing hand-hand combat with the price since the strikes are so close to the money. I would expect to see the short options ITM during the normal course of the trade, which is why I am concerned with early assignment.

I am resurrecting this old thread because I have the same question which was not answered directly. I am looking at equity options subject to early assignment.

If I have a multi-leg position using weeklies where my short leg starts off ATM, it is likely to move ITM, perhaps deeply on overnight gaps. Has anyone been assigned on the weeklies in this scenario?

KINGOFSHORTS · Jan 12, 2012

Would you do the trade if assignment was expected?

Trader13 · Jan 13, 2012

Quote from KINGOFSHORTS:

Would you do the trade if assignment was expected?

I would do the trade with vigilance if assignment was possible, but I would focus on European-style options if assignment was expected.

spindr0 · Jan 13, 2012

Quote from severdog:

Has anyone had any problems with an early assignment on an American-settled weekly option? My attitude thus far has been "if it can happen, it will happen, and at the worst possible time".

Ignoring ex-div situations, it's unlikely that a short option will be assigned early if there's time premium remaining. That's because it makes more sense to sell the option to salvage that premium. It does happen but not often.

FSU · Jan 13, 2012

Quote from spindr0:

Ignoring ex-div situations, it's unlikely that a short option will be assigned early if there's time premium remaining. That's because it makes more sense to sell the option to salvage that premium. It does happen but not often.

I would also add that if the stock is hard to borrow, this increases the chance of early exercise. For a non dividend play, easy to borrow stock, it is extremely unlikely you will be assigned early