As Robert stated above, you exercise early only when you are ITM and the stock's ex-div is just around the corner. If it weren't for the dividend, you're likely just close the position outright. Well, if your fund doesn't have the money to deliver the shares, then you end up with a margin call.
@schizo, stop talking BS of things you don't grasp! FYI: I as the option seller don't exercise, it's the option buyer who exercises. Then my side gets "assigned". And since in the case of "CashSecured Put" the cash is pre-allocated, then there is not any cash problems. So, in your posting you missed all points.
Here's another BS on early assignment for Put sellers: https://support.tastyworks.com/supp...1-why-would-a-short-option-be-assigned-early- " Interest Any deep-in-the-money put is at risk of early assignment. This is because it may be better for a long put holder to exercise their put and sell the stock so they can collect interest on the proceeds from the short sale. If you need to borrow money for the stock purchased from an assignment, you will have to pay interest on those funds. " "Deep ITM" BS! Not moneyness (here ITM) plays a role for an early exercise/assignment for Put, but whether the position is in profit for the buying side (meaning loss for the selling side). 'diots, these brokerage firms! Of course the question then becomes: since the buying side is in profit, then how much profit is enough after which the buyer will exercise? The early assignment risk for the Put seller is just this very risk. We can say the risk for the Put short seller exists when the position is in the reds. I guess from about 40+% or so loss (change% in premium to initialpremium, ie. the credit (of course meaning a rising premium which is not good for an existing ShortPut position), the risk of early assignment becomes real. How can the Put seller still avoid it? I'm not sure, but maybe by short-selling some more, as then his book loss (percentwise) would sink (ie. averaging down).
Your line #3: "So, the above saying cannot be true, as it does not make much sense, IMO." Suggests a total disconnect/lack of understanding of what "early assignment risk means"! Perhaps you may wish to focus on that disconnect.
I just checked it again, and I stand by what I said. In the subsequent postings I IMO proved the thing you above do question. We can understand this best & easiest if we just concentrate on ShortPut.
My response was because you did not ask your question about naked puts. Assignment Risks of Writing ITM options Was too general. In the future if you can provide a better description of your situation you’ll get better responses.
My research result to the extended (or specialized) topic question of "Early Assignment Risk For ITM Put Options" can be summarized as follows: Not moneyness (here ITM) plays a role for an early exercise/assignment for Put, but whether the position is in profit for the buying side (meaning loss for the selling side). Rationale for the above statement: imagine short selling an ITM Put, even a deep ITM Put. So we can generalize the question by striking "ITM", then it becomes: "Early Assignment Risk For Put Options". Of course the question then becomes: since the buying side is in profit, then how much profit is enough after which the buyer will exercise? The early assignment risk for the Put seller is just this very risk. We can say the risk for the Put short seller exists when the position is in the reds. I guess from about 40+% or so loss in premium (change% in premium to initialpremium, ie. the credit; of course meaning a rising premium which is not good for an existing ShortPut position), the risk of early assignment becomes real. How can the Put seller still avoid it? I'm not sure, but maybe by short-selling some more, as then his book loss (percentwise) would sink (ie. averaging down). Why is such an early assignment bad for the Put seller? Because if the Put seller could continue keeping the position then the current loss situation maybe would change till the expiry date (also b/c of the time decay and this causing decay in premium, which of course is good for ShortPut). Just hoping so. But with such an early exercise & assignment this hope dies and one has to take (realize) the current loss. This has to do with probabilities... It is always better if no early assignment happens.
I'm not an options trader, but I have been digging around trying to learn what I can. This appears to be a good opportunity for me to risk embarrassing myself in public. Plus, I can gage how my learning process is coming along. First, a buy-write is when you buy shares in the underlying and sell an option against those shares. That doesn't sound like the example you posted. And since you later indicated your question should assume an ITM naked Put, we'll go with that. Using a SPY Put that is 2.33 points ITM as an example, and assuming no change in price, no upcoming ex-div date, and no change in IV, here's my take on this: Looks like SPY closed at 413.67. If you look at the 416 Put expiring on 9/16, the last traded price was 12.28. So had you sold that Put at that price, with the multiplier of 100, you would have brought in $1,228 in premium. The intrinsic value of that put is the strike minus the spot, so 2.33 points of intrinsic value, or $233. The extrinsic value is the premium minus the intrinsic, which is $995. So had someone bought your 416 ITM Put and immediately exercised, they would be short 100 shares of SPY at 416 and be up the intrinsic value of $233. But since they paid $1,228 for your Put, they would actually lose the extrinsic value and be down $995 on the trade. No one is likely to do that, so your assignment risk is virtually non-existent. Now ,if you look at that same 416 Put expiring on 8/10, it's a different story. The last traded price was 4.76, so $476. Intrinsic value has not changed and is still $233, but since it is much closer to expiration, the extrinsic value has shrunk from $995 to $243. Anyone exercising at this point would still be down the extrinsic value of $243 on the trade. Again, unlikely anyone would do that, so your assignment risk, albeit it higher, is still low. Once extrinsic value is eliminated, that is where your assignment risk is high. That is why options traders often close their positions a week or so from expiration, while there is still enough extrinsic value in the option to mitigate assignment risk. Naturally, price and IV are going to change, along with other variables, that is why it's important to keep track of intrinsic and extrinsic values -- to make certain intrinsic doesn't overcome extrinsic so you don't get caught with an unexpected assignment. If that's not exactly correct, I hope I'm at least close. if not, maybe they'll have mercy on me.... and maybe even school me on my mistake(s). lol
@Robert Morse and @ondafringe, I did not say that I mean naked put. See this posting. IMO in this context it does not make a difference whether it's a naked put or a covered put, and I mean covered put (aka cash-secured put). Ok, "buy-write" means a covered call; so another unnecessary/confusing term.