just out of curiosity, If i have a spread where I am selling a put which is OTM and using that credit to buy some calls and puts. how long will it be before the buyer can exercise his rights? ie. the stock is at 25.5 and I am selling 26 SP put. which is 30 days away. I dont want to be left holding on to the stocks the day after the trade.. thts gona ruin my spread completely. so I was wondering how does that work?
The option can be exercised at any time. However one would not expect to be assigned on the short side unless it's of benefit to the holder.
you still need to watch it...I've been exercised when there was still value in the put...no big deal I immediately sold the stock for a sm profit but what if I hadn't checked that am and the stock tanked that day. Check your position before market open...every day.
ya that is what I am worried about. as the options market for the stock does not have alot of volume so if the buyer did exc it, i'd prob get called easily. though the stock volume is not tht bad so i can def liquidate it if need be.
Using the credit from an ATM credit spread to buy some calls and puts is like counting the chickens before they hatch.
Early excerise happends usually when the long has a good reason to own the stock -- either there is a dividend coming up; in which case, value of the dividend has to be over the value of residual optionality -- there is huge borrow rate in the stock and the P/V of the borrow is (again) higher then the value of optionality Aside from that, an early excersize is a windfall to the short and it's pretty awesome.