I Need to Know When I’m Assigned. Why Is Option Assignment Notification So Screwed Up?
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Performance - Plain and Simple. I don't know if I am even directing this question properly, but I am trying to overcome the bs replies from various brokers and the option trade groups.
How is it possible or justified that a call writer who is assigned scottrade options assignment risk a Thursday or Friday is not be informed of it until it is too late to do scottrade options assignment risk other than scottrade options assignment risk shares in the open market to deliver, incurring a heavy loss?
It seems to me this should be fought vigorously. Especially with spread positions the writer needs notice of the short leg assignment in time to exercise his long leg in order to acquire the shares at the strike price. Notice to exercise and notice of assignment should be required to be delivered by Friday morning and no later. Am I missing something here, except the advisability to always close out spread positions before expiration? This is a very complex topic to address because there are so many moving parts to option assignment.
I scottrade options assignment risk try to break my response down into a number of different areas. We are talking about assignment on a stock option. When you sell options covered or uncovered you have obligations, no rights. Scottrade options assignment risk you consider selling an option, get used to the idea that you are powerless. You do not control the situation, the option buyer does. The naked call writer has unlimited risk. If the stock skyrockets, eventually the writer will lose point for point with every dollar the stock rallies.
The option short seller will never get assigned unless the option is in the money. It must have intrinsic value and the option must not be trading with any time premium. If the option is carrying premium above its intrinsic value, the option buyer will be better off selling the call in the open market than he will be exercising the call. As the naked writer, you must know that you are at risk. If you want to avoid assignment, you need to buy your call in.
At this stage, every point that the stock moves higher, the options will increase in value by that same amount and so will your liability. The delta of the position is -1 and you are effectively short the stock by being short the option. In scottrade options assignment risk case of a call credit spread, your risk is limited to the difference in the strike prices less the credit received.
You still get to keep the credit he received, so your risk profile has not changed due to assignment.
You have simply lost the maximum on this trade. This same scenario will hold true no matter how high the stock goes. Clearly, in this case getting scottrade options assignment risk actually helped you. As you can see, getting assigned on one of the legs of your spread did not increase your position risk, it could only reduce it. The maximum risk on a stock credit spread is the difference between the strike prices, plus the credit received.
Otherwise, you might come in Monday morning with an unexpected position and that could increase your scottrade options assignment risk. This was not a primary topic for this article, but I thought I would make reference to the situation. To this point I have talked about how assignment on a naked short or a credit spread does not impact the risk profile of the position. Option buyers have until the close to hand in their exercise notices.
The OCC processes the request and uses a lottery system to determine which brokerage firms that have a short position will get assigned on the option. They also determine how many contracts the firm will be assigned on. Overnight, the OCC notifies the brokerage firm and they need to review all other accounts that are short those options.
Through a standardized lottery system they determine which customers will be assigned. As you can see the processes involved. Once the brokerage firm allocates its assignment across the accounts, it should notify customers that this has taken place. That notification can take any form. As a customer, if you are assigned you will look in your account and see that you are short shares of stock if you were short calls.
Once the market opens you can either exercise the same scottrade options assignment risk of calls or you can buy the shares as I described above.
During assignment, you have one day to adjust your position the next business day without incurring the additional margin required for a short stock position. As you can see, the assignment process is complex. Where stock options are concerned, the assignment does not increase risk, it can only scottrade options assignment risk it in the case of a spread.
It would be nice if a brokerage firm notified you as soon as they are allocating assignments, but I know that is not always the case. You perform a service that even the clearing house blog cannot compete with. Thank you very much for this detailed answer.
Just wanted to add that some brokerages such as the one I work at actually give you untell 5: Not only do we have to notify everyone who got exercise notices, but also those who were auto exercised but dont have the money in there account to purchase there shares. Most of the time we have to call all of these customers back and that can be a long and painful process. My scottrade options assignment risk point is from one who initiates spreads, esp.
At expiration if I have not closed my position and both legs are in the money both parties will be auto-exercised whether I notify or now. Two of my brokerage firms state that my long leg will be auto exercised and the shares sold to the counter party to fulfill my obligations on a same day substitution basis Friday evening and I will see the results in my account on Sunday, usually net positive. If my acount lacks funds or margin for such transaction there will still be no margin call or penalty on a same day substitution basis.
What prompted my annoyance and inquiry was the scottrade options assignment risk that there still exist some brokerage firms that not only do not do this for their clients but do not even notify clients of assignment. Apparently your house is scottrade options assignment risk and I appreciate all the work involved in keeping things whole.
Thanks for your comment. Here is how it worked: This put me im a position of wanting SPY to close belowit closed at Yes, the SPY spiked up to I had no choice except to cover at this price.
If you have many positions to monitor on expiration Friday, you can place orders to exit the options contingent on the stock trading above the strike price 10 minutes before the close. These order types are available at many brokerage firms. In doing so, scottrade options assignment risk should avoid assignment and keep you from wasting money buying in options that expire worthless.
I believe this is a typo. It should be the other way around. I have a question They short the stock, correct? When a put seller short puts is assigned, they come in long stock. To unwind the position, they sell the stock. Yes you can get assigned. In a debit spread, it is great because you have maxed out. Simply exercise your long option - no margin required if you do it as soon as you are assigned.
If one is long puts and exercises it it pputs him in a short position. What happens if you scottrade options assignment risk have scottrade options assignment risk percent of the dollar amount needed to buy that volume of stock to cover your short position. Does same day substitution alow you to buy it back immidietly with say 10 percent down using 90 percent margin or does the broker law out the money how does that work? Scottrade options assignment risk you are short an option, you are not in control and the exchanges give you a grace period of one day to get out.
When you are long an option, you are in control. If you go through with the exercise and you do not post the required margin, you will have a Fed call.
Your brokerage firm will restrict your account after that and prevent you from doing it again. Joe says his short scottrade options assignment risk was ITM of. Can you be assigned on a OTM option? That his account was charged of that amount?
And what means he had to cover at The short and the money are moved automatically by the broker? Then on Monday he could sell the stock at Thanks and best regards to all. The put was OTM. He was expecting the SPY to finish below and to get assigned. Now he came in short the SPY at Monday morning.
The SPY rallied and he lost money. How will this then be reflected in your account? Will it simply show 2 expiring options or will it show a buy and simultaneous sale of equal number of shares in the underlying stock? Indexes, being scottrade options assignment risk settled will presumably show nothing since the underlying is cashor will it show a buy and a sale representing the cash equivalent transactions of the 2 sides?
If so, this could be dangerous for those with more than 3 such expiring spreads on a given expiration. The assignment and exercise will show up as a purchase of stock at one price and the sale of stock at another price. There is a rule that is called a same day substitution and it this transaction is not considred a day trade. I am trading Iron Condors.