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OddTrader
Registered: Mar 2003
Posts: 5271 |
09-12-09 01:35 AM
Have you ever got any early assignments?
If not, why/how?
If yes, how often, how many times so far, and/or how many per year on average?
TIA!
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OddTrader
Registered: Mar 2003
Posts: 5271 |
09-12-09 03:17 AM
"Option Mystery"
http://www.elitetrader.com/vb/showt...=&threadid=8902
Quote from Traden4Alpha:
Benefits of being assigned? Ok, I can see why having your sold call get exercised might be beneficial. It is an enforced way of cutting losses short (the person who bought the call would likely exercise it if the stock had moved sharply upward, meaning your bet on a downtrend was wrong). Of course not being in control of when you took the loss might not be pretty, although I suppose you have some leeway as to when to buy the shares that the exerciser of your call is demanding???? A cursory read of a couple of broker's policies suggests that on assignment of the call option, your account might immediately show that you were short the shares from the call (in addition to the put that you still hold). I don't know when the cash from the call would appear (I suppose T+3 applies?). Hmmmm.... very tricky.
Data on option assignments? How often do options get assigned anyway? I Googled around the internet, but found little on the likelihood of assignment (only a vague statistic that 10% are assigned, mostly at expiration). Apart from automatic assignment of options that are in-the-money by 0.75 at expiration, the only other situation where assignment seemed likely was prior to the ex-dividend date. Anyone know of a data source on option assignments? How often do they actually occur? I know that the assignment process is random and was wondering the % chance of exercise for traders who sell options.
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dagnyt
Registered: Nov 2003
Posts: 1895 |
09-12-09 05:38 AM
Quote from OddTrader:
Have you ever got any early assignments?
If not, why/how?
If yes, how often, how many times so far, and/or how many per year on average?
TIA!
You are asking all the wrong questions.
How many times per year? If I say '6,' what does that tell you?
And I just love your first question. You want to know WHY we have NOT received early assignment notices. As dumb as that question is, I have the reply: Because most option owners are not ignorant and they do not exercise early.
Mark
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OddTrader
Registered: Mar 2003
Posts: 5271 |
09-12-09 06:20 AM
For options trading practitioners :
Have you ever got any early assignments?
If not, why/how?
If yes, how often, how many times so far, and/or how many per year on average?
TIA!
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OddTrader
Registered: Mar 2003
Posts: 5271 |
09-12-09 06:42 AM
"Options Assignment Questions"
http://www.888options.com/help/faq/....jsp?prt=nyse#6
Quote
Q: I was assigned on my March 40 put option when the stock value went below $38, even though it wasn't expiration. On another stock, I had a covered write position where I was short a 70 call which went in-the-money by $7, and the call wasn't assigned until expiration day. How can I tell when I will be assigned?
A: The short answer is that you can never tell when you will be assigned. Once you sell an option (put or call), you have the potential for being assigned to fulfill your obligation to receive (and pay for) or deliver (and get paid for) shares of stock on any business day. In some circumstances, you may be assigned on a short option position while the underlying shares are halted for trading, or perhaps while they are the subjects of a buyout or takeover. To ensure fairness in the distribution of equity and index option assignments, The Options Clearing Corporation utilizes a random procedure to assign exercise notices to the accounts maintained with OCC by each Clearing Member. The assigned firm must then use an exchange approved method (usually a random process or the "first-in, first-out" method) to allocate those notices to accounts which are short the options.
Having said that, there are some generalizations which might help you understand when you might be more likely to be assigned on a short-option position.
* Only about 12% of options end up being exercised; the percentage hasn't varied much over the years. That does not mean that you can only be assigned on 12% of your short option, however. It means that, in general, option exercises are not that common.
* The majority of option exercises (and the corresponding assignments) take place as the option gets closer to expiration. Without getting into the math too much, it usually doesn't make sense to exercise an option, which has any time premium over intrinsic value. For most options, that doesn't occur until close to expiration.
* In general terms, a put which goes in-the-money is more likely to be exercised than a call which goes in-the-money. Why? Think about the result of an exercise. An investor who exercises a put uses it to sell shares and receive cash. A person exercising a call option uses it to buy shares and must pay cash. People are more likely to exercise options if it means they can receive cash sooner. The opposite is true for calls, where exercise means you have to pay cash sooner.
The bottom line is that you really don't have any sure-fire way to predict when you will be assigned on a short option position; it can happen any day the stock market is open for trading.
Unquote
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