When are sold ITM PUTs assigned to me?

N

nx109

Hello!

I've googled and searched the forum but a few specifics are still unclear to me as to how assignment of puts I've sold happens (and when).

Let's assume I've sold some puts on the SPY at strike 150, and on a Friday close the SPY is trading at 149.

To my understanding:
  • The puts can be exercised by the buyer any time after the markets close on Friday (16:00) until Saturday if the price is below the put strike (in my example 150).
  • If at the Friday close (regular trading hours) SPY is 149, and then the after hours price of the SPY goes above 150 (strike), and the put buyer has still not exercised his put, he may not (at that point) exercise it, and I will not get assigned.
  • At Interactive Brokers I will know immediately if I am assigned, when I am assigned. This will show up as a long position in the SPY and the negative unrealized PnL will be equal to the price difference (price - strike) * option contract count * 100.
  • Assignment of ITM Puts happens 99.9% of the time after expiry.

Are any of these points incorrect?

On one website it seemed that they said the brokers will automatically assign the puts based on only (and nothing but) the very last Friday after-hours traded price of the SPY (on any exchange). Could this be true also, so I don't have to worry about anything except the very last print?

Understanding assignments is an important part of spreads, if something unexpected happens and knowing this in more detail would certainly help me understand the risks a little better.
 
1. They have until friday 5:30pm to exercise puts.
They are exercised automatically if they are in the money at the 4pm close. Any contrary intents (opposite of the automatic decision) must be logged at 5:30.
2. Yes. tehy can be exercised anytime but they are processed end of day.
3. You won't know you have been assigned until the following day when the OCC runs its random allocation process.
 
Thanks for answering! So in summary I think you are saying:

1-If the price is in the money at 4 PM (eastern time) it will get exercised 100% of the time.
2-Generally intention to not exercise is very rare and I can assume it to be at less than 1% (on a monthly basis, this is my opinion not something you said).
3-Processing happens at 5:30 PM and assignment happens on Saturday.

But I'm not sure which one of these you are saying:

i) If the price is OTM at 4 PM but goes ITM after 4 PM and before 5:30 PM there is a ?high? % chance it will get exercised.
OR
ii) Is it 100% chance of exercise if the price becomes ITM at any time after the close also?
 
In addition to the previous post, I also found this (though it is not very relevant to my concerns)

In June 2013, the SEC approved a rule change that moved the processing of standard monthly expiring options from Saturday to Friday. This was merely a back-office change, but due to the large amount of processing for the monthly expiration, data may be transmitted later than usual on that Friday.
More...
 
Quote from nx109:

Thanks for answering! So in summary I think you are saying:

1-If the price is in the money at 4 PM (eastern time) it will get exercised 100% of the time.
2-Generally intention to not exercise is very rare and I can assume it to be at less than 1% (on a monthly basis, this is my opinion not something you said).
3-Processing happens at 5:30 PM and assignment happens on Saturday.

But I'm not sure which one of these you are saying:

i) If the price is OTM at 4 PM but goes ITM after 4 PM and before 5:30 PM there is a ?high? % chance it will get exercised.
OR
ii) Is it 100% chance of exercise if the price becomes ITM at any time after the close also?
More...

1. Yes unless you are at the money (in or out) then you may or may not be partially or all exercised.
2. If you are at-the-money it will be greater than you think.
3. Yes. You will know definiately early Monday/Sunday.

i. if you are at the money anything can happen. rarely do stocks move a lot on a friday, but if they do, you will probably get hurt.
 
So, in simplistic probability terms, is it safe to say that if the underlying was trading above my price (OTM) at all times before 4 PM but then goes below my strike (becomes ITM) after 4 PM for the first time, there is a 99% chance I will get assigned?

You've been very helpful.
 
It depends on the official "last price" of the day is and I think it's defined by MM's - I think the official price is set at 4:15 EST.

If you're unsure you should wait until after 4:15 and call your broker to find out the last price.

If you're long - you might be best off waiting and then declining an assignment (call broker) -

Oh and you CAN get assigned early if you're short something... even a week or two if it's DEEP ITM, and you can get assigned during the day on Friday which is kinda freaky to see a position change on you ~

Once I was called out (covered call) and the ETF was .50 under the exercise price (it was a 3x ETF during the 2008 crisis) - worked out good for me in the end.
 
So you're saying 4:15? Makes sense since SPY options end trading at that time. Good idea on calling the broker, if in doubt, I will do that. Couldn't there be an easy way to check the official last price of underlying on option expiration day? I mean it's a pretty important number.

I've seen pinning to strikes a few times, so that makes it even less certain and more likely to close at the money. Those pesky manipulating MMs :) j/k

I wouldn't mind getting assigned 1 or 2 weeks early, it doesn't really change my calculations. It tells me somebody is eager to get rid of all that time value, so he must be either stupid or very sure about the direction.

Thanks for the info.
 
Actually looks like it's changed to 4:20 EST, and you'll know cause it will be the big print size (not 100 share lots)

Look at BBRY and GOOG

http://www.nasdaq.com/symbol/bbry/after-hours?page=2

http://www.nasdaq.com/symbol/goog/after-hours?page=2

Note that both the big size prints are at 4:20, and they should be the same "last price".

Sometimes the official "last price" can be quite a distance from the 100 share lots that are trading.

You're best off calling the broker cause you don't want a surprise on Monday morning. And I always check Sunday night to see if I've been assigned something unexpected to make sure I'm up in pre-market on Monday to close that ASAP.

The broker will liquidate the position when the margin clerks get around to it, but you're better off being proactive.

If you've got a small account and get assigned a 10 lot position of SPY (which is 160k $) - you can probably close on Monday without a big change, but what if Monday AM the market is down 3% or up 3% - now you're looking at a 5,000$ change in value...

Always best to close early IMO - spend that nickel and sleep safe at night.
 
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