Is it possible to opt out from option assignment?

Discussion in 'Options' started by thecoder, Nov 19, 2021.

  1. thecoder


    As is publicly known (or isn't it? :)), with American style options (opposed to European style options),
    the buyer of the option contract (ie. the guy/gal/AI who is Long on the option) can decide anytime during the life of the option to exercise his right. This means the other party (ie. the option writer aka short seller) has immediately to fulfill his obligation from the option contract.

    Now, most options traders don't like American style options and rather would have the European style handling, where only on the last day of the option's life such an exercise and assignment is possible, as most traders just want to trade the options itself, but not want to own the underlying stock.

    So, consequently the question has to be:

    Is it possible to opt out from such an assignment and instead say that one wishes to handle it on a cash basis? Ie. without wanting to deal with the underlying stock or whatever.
    If yes, then how is the procedure? Do I have to contact my broker? If yes, in what timeframe does this has to happen?


    Cf. also
  2. Robert Morse

    Robert Morse Sponsor

    Sorry, but no.

  3. No! If you don't want American style options, then do not trade them!
    MoreLeverage likes this.
  4. thecoder


    Hi Robert, IIRC, some years ago it was IMO possible at one of the big brokers, IB or Ameritrade.
    At that time it didn't tangent me, b/c I was not doing anything with options then.
  5. Robert Morse

    Robert Morse Sponsor

    The OCC does not offer that choice for the seller. All the rights go to the buyer. That is the entire point of selling your rights as the seller for a price, and the buyer willing to buy that right. It would make no sense if the seller can opt out and keep money.
    rb7 likes this.
  6. Cabin111 and smallfil like this.
  7. thecoder


    Some folks unfortunately seem to have misinterpreted me (hi Robert :)).

    I'm refering to this definition by investopedia from the initial posting
    Ie. I mean opting out from this automated lottery system.

    The full text:
    Options Assignment
    Options can be assigned when a buyer decides to exercise their right to buy (or sell) stock at a particular strike price. The corresponding seller of the option is not determined when a buyer opens an option trade, but only at the time that an option holder decides to exercise their right to buy stock. So an option seller with open positions is matched with the exercising buyer via automated lottery. The randomly selected seller is then assigned to fulfill the buyer's rights. This is known as an option assignment.

    Once assigned, the writer (seller) of the option will have the obligation to sell (if a call option) or buy (if a put option) the designated number of shares of stock at the agreed-upon price (the strike price). For instance, if the writer sold calls they would be obligated to sell the stock, and the process is often referred to as having the stock called away. For puts, the buyer of the option sells stock (puts stock shares) to the writer in the form of a short-sold position.
  8. Robert Morse

    Robert Morse Sponsor

    I did understand your question, and my response is the same. You, the seller, do not even know you are part of the process until your broker tells you, you were assigned.

  9. smallfil


    When you are all in, trading all your monies----you are 100% at risk. That is why I stopped trying to make monies selling options for premium. The first and last time I trade options spreads, I lost 6 of 7 trades and $4,000 and that was supposedly, a very low risk trade? Now, I just buy options, calls and puts. The most I can lose is the cost of the premium but, my upside is unlimited. I can live with a 30% win rate. I am in the minority as most traders love the high percentage of winners selling premium on their options. No, thanks. I would rather risk a few hundred dollars to win thousands than to risk thousands to win a few hundred dollars.
    Lou Friedman likes this.
  10. zdreg


    You have no basis for your remark.
    #10     Nov 19, 2021