Early assignment

Discussion in 'Options' started by ADLE, Nov 2, 2006.

  1. ADLE


    How high is possibility of early assignment on the next month stock options?
    Let's say, today is early November and I sell ITM options of December, how likely they will be assigned?
    When brokerage firm will look to assign these options at November before 3d Saturday or when next options month begin?
    Thank you.
  2. Depends on a variety of things:

    1) How much time value remains? If it's only a few cents, the odds of an early exercise is much higher.
    2) Is there a dividend upcoming? If so, you're much more likely to be assigned right after the dividend occurs (for puts) or right before (for calls).
    3) Is there a possibility of really bad news? (e.g. FDA non-approval of a drug, bankruptcy, out of business)
    4) Does it have "odd" trading rules? OEX, for example, has a much higher probability of early exercise.
    5) If it's a futures option, how near to Last Trading Day of a prior contract are you?
    6) Is there a possibility for a stock-for-stock aquisition?

    In general, as long as there's plenty of time value and put-call parity exists, you should be at low risk for early assignment.
  3. ADLE


    ok, how about if options are from the next month(December in this case) and I am thinking getting out of the trade by the end of current trading month(November) so that options will have one more month until expiration?
    Thank you.
  4. Having an extra month to expiration is irrelevant if any of the issues I mentioned in my previous post are true.