What aren't all options cash settled?

[taowave]

This thread illustrates why 99 percent of traders lose money..

Listen to Newwurlddmn..

Once again,an option is worth more alive than dead..

Yes,in isolated cases of Div vs carry,or hard to borrow stocks,one could get assigned early and pay the piper..But you should have seen the Div play coming, or known the stock is impossible to borrow.Thats on you guys,suck it up..

FWIW,I am happy to sell you noobs options/spreads with the assurance you will exercise early. Who wouldn't want their short call spread to magically/generously turn into a put??? Who wouldn't want their short option exercised early and granted a free option??

Learn the basics

 

[wxytrader]

This thread illustrates why 99 percent of traders lose money..

Listen to Newwurlddmn..

Once again,an option is worth more alive than dead..

Yes,in isolated cases of Div vs carry,or hard to borrow stocks,one could get assigned early and pay the piper..But you should have seen the Div play coming, or known the stock is impossible to borrow.Thats on you guys,suck it up..

FWIW,I am happy to sell you noobs options/spreads with the assurance you will exercise early. Who wouldn't want their short call spread to magically/generously turn into a put??? Who wouldn't want their short option exercised early and granted a free option??

Learn the basics

What we are talking about here is the assignment risk versus cash settled if price finishes between the strikes. If you can hold the assignment then yeah who cares, turn around and sell against it...that's ideal. But who here can hold the position they are assigned? Very few so you are left being forced to close the position or get margin called...that's not the case with cash settled.

Like look at this example: https://steadyoptions.com/articles/everything-you-need-to-know-about-options-assignment-risk-r738/#:~:text=One of the biggest worries,position in the underlying stock.

It's not the same lol...this article fails to mention what happens when the price finishes between the strikes.

Here is another explanation that assumes the long option will still be protecting you, which it won't be at expiry if it finishes between the strikes.
https://us.etrade.com/knowledge/library/options/understanding-assignment-risk

Finally an article that addresses the issue!
https://www.elitetrader.com/et/thre...tions-cash-settled.377439/page-4#post-5903535

"You can realize an insanely large loss on your credit spreads if the stock closes between your two strike prices for your credit spread on expiration day."

Like wth? The long put should have been exercised automatically with the short put locking in losses at 409...what a racket.

 

[taowave]

A modicum of skill is all thats necessary..

The only scenario off the top of my head is being short a straddle and the stock gets pinned at the strike..

With that said,there are worse things in life than to be short straddles and have the stock pinned at strike...Its a good problem to have.

Yeah,I get it if you are short gamma in a highly illiquid name and the market makers decide not to play nice when you try to close the straddle...

Short a vert and the stock closes between strike is no big deal unless you get fooked by a crazy after market move...

Be smart,cover the bases and you should be good to go..

What we are talking about here is the assignment risk versus cash settled if price finishes between the strikes. If you can hold the assignment then yeah who cares, turn around and sell against it...that's ideal. But who here can hold the position they are assigned? Very few so you are left being forced to close the position or get margin called...that's not the case with cash settled.

Like look at this example: https://steadyoptions.com/articles/everything-you-need-to-know-about-options-assignment-risk-r738/#:~:text=One of the biggest worries,position in the underlying stock.

It's not the same lol...this article fails to mention what happens when the price finishes between the strikes.

Here is another explanation that assumes the long option will still be protecting you, which it won't be at expiry if it finishes between the strikes.
https://us.etrade.com/knowledge/library/options/understanding-assignment-risk

Finally an article that addresses the issue!
https://www.elitetrader.com/et/thre...tions-cash-settled.377439/page-4#post-5903535

"You can realize an insanely large loss on your credit spreads if the stock closes between your two strike prices for your credit spread on expiration day."

Like wth? The long put should have been exercised automatically with the short put locking in losses at 409...what a racket.

 

[wxytrader]

Short a vert and the stock closes between strike is no big deal unless you get fooked by a crazy after market move...

Be smart,cover the bases and you should be good to go..

This is my point, with cash settled you don't have to worry about any of it...you can let it go to expiry for max profits if you want to with no added risk.

 

[taowave]

Yes,you are right,it could get hairy on expiration close,but if you know the risk,cover it..

Some of the other posters concerns about early exercise should not be a concern..

This is my point, with cash settled you don't have to worry about any of it...you can let it go to expiry for max profits if you want to with no added risk.

 

[engineering]

Options should settle in what they claim to be options on, otherwise they will not have the proper effect on the price of the underlying.

For example, it should get progressively more expensive to buy calls on something as the open call interest increases.

It shouldn't be about convenience for the trader, it should be about having a properly functioning market.

 

[newwurldmn]

Too hard. Drive a lambo all day instead.

A modicum of skill is all thats necessary..

The only scenario off the top of my head is being short a straddle and the stock gets pinned at the strike..

With that said,there are worse things in life than to be short straddles and have the stock pinned at strike...Its a good problem to have.

Yeah,I get it if you are short gamma in a highly illiquid name and the market makers decide not to play nice when you try to close the straddle...

Short a vert and the stock closes between strike is no big deal unless you get fooked by a crazy after market move...

Be smart,cover the bases and you should be good to go..

 

[mervyn]

Options should settle in what they claim to be options on, otherwise they will not have the proper effect on the price of the underlying.

For example, it should get progressively more expensive to buy calls on something as the open call interest increases.

It shouldn't be about convenience for the trader, it should be about having a properly functioning market.

bingo.

otherwise you can buy billions of call positions and have no effects on the underlying price.

 

[wxytrader]

Options should settle in what they claim to be options on, otherwise they will not have the proper effect on the price of the underlying.

For example, it should get progressively more expensive to buy calls on something as the open call interest increases.

It shouldn't be about convenience for the trader, it should be about having a properly functioning market.

Options are essentially insurance, and you pay more if there is more risk...ie there is a hurricane coming..same as people buying more puts for before an earnings report. Whether cash settled or not has no bearing on the premium or the underlying.

bingo.

otherwise you can buy billions of call positions and have no effects on the underlying price.

So what happens if some hedge fund sells more call options than there are outstanding shares, and lets them expire ITM?

 

[mervyn]

Options are essentially insurance, and you pay more if there is more risk...ie there is a hurricane coming..same as people buying more puts for before an earnings report. Whether cash settled or not has no bearing on the premium or the underlying.



So what happens if some hedge fund sells more call options than there are outstanding shares, and lets them expire ITM?

Check the GameStop trades back then? Who were selling the naked calls? It is Bill Gross type of whales, probably Steve Cohen too. Don’t care about hedge funds much, they are OMP, good luck if you invest with them.

NVDA rally this summer was driven by calls. Hats off if you are in the trade.