Wrote my first option yesterday. Got assigned on it 16 hours later.

[guru]

Personally I believe your broker may be wrong (whoever you spoke to) because there are very advanced algos that do those options assignments, while:
https://www.optionseducation.org/referencelibrary/faq/options-exercise
“Options exchanges have a cut-off time of 4:30 p.m. CT, for receiving an exercise notice. ”

A broker may show a time when they processed the assignment, but the instructions come from options clearing authority/exchange that received a request from someone else to exercise their options the night before.
And really you’ve sold a call for more money because the call price was inflated due to that dividend, and professionals don’t lose money by buying overpriced options from you
Unless your broker is so clueless that they will lose money themselves on this deal...

Also, options cannot be exercised/assigned after midnight for the simple reason of price misalignment. The exercise time would not match the stock trades and option prices that do not even trade outside regular hours. People would wait to see if they may lose money due to some after hours news and then decide to exercise their options or not.
There would be so much room for cheating it would be an absolute mess. SEC has variety of rules and regulations to prevent cheating, and some of them set specific time and conditions for exercising and assigning options.

 

[ET180]

Agree with Guru, I think what your broker told you is wrong. It's the ex-dividend date that matters.

When the board announces an upcoming dividend payment, it specifies an ex-dividend date on which new stock buyers will not be eligible for the dividend. If you cover your short sale by buying back and returning the shares before the ex-dividend date, you will not need to manufacture a dividend for the broker.

https://finance.zacks.com/avoid-short-sale-dividend-payment-8493.html

 

[spindr0]

If you have ITM calls then they will likely get assigned on the prior day provided that the premium left on the call is less than the expected dividend.

I don't agree. If there is time premium left, it's thrown away by the owner who exercises the call. In addition, there's no profitable arb by doing so since share price reduction by the amount of the dividend is a wash.

However, that statement is true for an ITM put:
- Buy stock
- Buy put
- Exercise put on ex-div
- Collect div on Pay Date

An ITM call is likely to be exercised early (by the buyer) if it trades below parity and someone sells it rather than performs the discount arb himself. But that has nothing to do with ex-div.

 

[spindr0]

UPDATE:

Broker said I'm not on the hook for the divy. He said I'd only have to pay it if I held my short position until the day of record which would be Monday.

Your broker's information is wrong. To be eligible for the dividend, you must buy the stock at least two business days before the date of record. Translation? If you're short the stock on the ex-div date then you're short on the record date and you pay out the dividend.

https://www.investopedia.com/ask/an...e-between-record-date-and-exdividend-date.asp

 

[FSU]

The person you spoke to is wrong, you will in fact owe the dividend.

The key to knowing whether your call should be exercised is to look at the correspond put, if it is less then the dividend then you will most likely be assigned. This is because being long 1 put and being long 100 share of stock is synthetically the same as being long a call. So if someone is long the SPY 319.5 call, he could exercise it, buy the 319.5 put, and get the 1.53 dividend. He would then have synthetically the same position he had before but with an extra 1.53 (less the price of the put he bought)

 

[FSU]

I don't agree. If there is time premium left, it's thrown away by the owner who exercises the call. In addition, there's no profitable arb by doing so since share price reduction by the amount of the dividend is a wash.

However, that statement is true for an ITM put:
- Buy stock
- Buy put
- Exercise put on ex-div
- Collect div on Pay Date

An ITM call is likely to be exercised early (by the buyer) if it trades below parity and someone sells it rather than performs the discount arb himself. But that has nothing to do with ex-div.

All the Dec Spy calls below the 320 strike should have been exercised yesterday.

 

[Amun Ra]

A lot of you seem to think I'm going to have to pay the divy. I guess we'll just have to wait and see. Anyone know when they will take the money out of my account? Will it be next week sometime or when they actually pay the dividend?

 

[taowave]

Save yourself the headache and read what FSU wrote.If you got assigned,you lost the div.The div is the reason you got assigned,and if you would have looked at the price of the put on the corresponding short call line,you would have known you were going to get assigned and lose the div..You got the double whammy as SPY rallied..Read up on dividend arbitrage

 

[traider]

Quite sure you lost the dividend, the auto exercise usually done by the most advanced algos that take care of this simple case. There is no free money for something so simple else everyone will just do this.
Please update the thread when you have the final cash accounting.

 

[ironchef]

Was trying a new strategy with writing options. I wrote just 1 SPY DEC20 319.50 call and someone assigned it to me when the price of SPY was 319.39 which seemed weird.

I read that assignments are rare and was not expecting my very first option to be exercised. Anyone have any insight into why someone would do this? SPY immediately went up in pre-market from the 319.39 price, but I was assigned at exactly 4:30am EST

The take away lesson for you (and us newbies): You put on that trade because you thought you saw some very obvious profit potential. The reality is the market is very efficient, there is a reason why the MM offered that price to you and it is not because they like to offer you a free lunch.

When I started out I wrote lots of OTM/DOTM options thinking they were free money. They were very expensive free money.

Good luck.