Assignment and indexes

Discussion in 'Options' started by Gintonic2009, May 27, 2011.

  1. Hi all! I am studying options strategies since a few months and paper-trading with good success on vertical spreads, iron condors, calendar and butterfly. The problem while paper-trading is that I do not risk to be assigned on sold positions. I am thinking to go live but want to be sure never been assigned. If I only trade cash-settled index options like SPX, OEX, DJX, XSP, XEO, NDX, MNX, RUT, BSZ and BVZ do I risk something on sold options? I do not think so but it is always so difficult to find info about what really happens with assignment.

    Thank you very much.
  2. MTE


    Most index options are European-style so you don't have to worry about early assignment. However some are not, namely OEX, which has American-style options and can be exercised early.

    Before making any live trades in any instrument you should review contract specifications, which have all the details about that particular instrument. For index options CBOE has all the specs.
  3. Thank you very much for the reply. I am not able to understand how can be assigned an option on an index. Only by cash I think but I hardly understand it in live trading. Maybe, if assigned, I can be forced to buy the sold position because who bought wants to cash it?

    Thanks again.
  4. MTE


    Index options are cash-settled, so if you are assigned on an option (early or at expiration) you will have to pay the difference between the settlement and strike price in cash. So, for example, if you are assigned on a SPX option that is 10 points in-the-money you will be required to pay $1,000 in cash, since each point is worth $100.
  5. Thanks again! It's clear now. I immediately got a list of european style optionable indexes. That's really safer :)
  6. tomk96


    make sure you understand how the index settles if you plan on holding any positions into expiration. opening cash prints can be well outside of the day's trading range.