Options assignment lotteries

Discussion in 'Options' started by MoreLeverage, Jan 25, 2018.

  1. i recent sold some calls that expired exactly at the money and ended up getting fully assigned on them, which I am told is unusual when there is no news or after hours move in the underlying stock. I wanted to know if this was just bad luck, or if many of those contracts were voluntarily exercised despite not being ITM. However, I had no luck getting my broker to disclose any details of the particular lottery used (i.e. the odds or % of client contracts subject to assignment), only their general policies.

    Do brokers usually provide any details of an assignment lottery upon request?
     
  2. Robert Morse

    Robert Morse Sponsor

    What was the stock?
    What was the open interest on that strike?
    What was the date of the expiration?

    First the OCC has a process to determine what each clearing broker is assigned, then each clearing broker has a process. As it is all automated there is no reason to expect anyone was out to get you.
     
  3. This was the regular January monthly expiration. I don't have the historical open interest offhand, but the current Feb's have about 5-6k contracts open. I had a tiny % overall but enough contracts to think that full assignment might be unusual in a situation where the stock was not ITM.

    Yes, I know the process and that it's automated. I was curious about if I could learn something about why this happened and wanted to know the lottery odds, just to double check there hadn't been a mistake and for my general information. Each broker must know their own client lottery odds since they run the lottery, even if they might not know the OCC level odds if they aren't told that.

    Would the broker level lottery odds be available upon customer request at Lightspeed for example?

    Sure, not the OCC or my broker, but maybe the options counterparty was :). They were right, at least in the short term.
     
    Last edited: Jan 25, 2018
  4. Robert Morse

    Robert Morse Sponsor

    You deleted the symbol and strike, can you type that again.
     
  5. I sent you a PM with more details.
     
  6. elt894

    elt894

    Are there any rules governing the broker's assignment process? For example, could more preferred accounts be last in line for assignment? All I know of is OCC rule 804, but that only says there has to be a "fixed procedure."

    A few months ago I was short 20 deep ITM calls in one account and 30 in another account. Same strike and expiry, and both accounts were with IB. One day prior to expiry 3/20 were assigned in the first account, and 30/30 were assigned in the second. I would have expected them to be more proportional, but I could imagine that accounts are randomly chosen and assigned in full.
     
  7. Robert Morse

    Robert Morse Sponsor

  8. IB's assignment process will give all but the first and last account chosen full assignment.

    https://www.interactivebrokers.com/download/option_exercise_disclosure.pdf

    You have the same odds, but it's more or less an "all or nothing" thing in terms of assignment. This makes it hard to tell if you were unlucky or if there was a very high fraction of assignments on that contract.
     
  9. spindr0

    spindr0

    The OCC uses a "wheel" to randomly determine assignment and then notifies the brokers involved. You can Google for the "wheel" details. Each broker crafts their own process for selection of positions.

    You mentioned that your short calls expired exactly ATM. If your call traded ITM during the day, the bid may have traded below parity and there would have been more to gain by the call holder shorting the stock and exercising the call in order to avoid the haircut. I've done this many times.

    A much less frequent occurrence is the call holder who just wants the stock to own or to cover an existing short position.
     
    #10     Jan 25, 2018
    MoreLeverage likes this.