question about assignments

Discussion in 'Options' started by pennystocker, Dec 18, 2009.

  1. If I sell a call for $2 and the option gets in-the-money before expiration, who is on the other side of the assignment transaction? Is this a person who was willing to buy a call for $2 at the same strike price or would it be just anyone who bought a call at the same strike price ?

    Would I get assigned on a first-come-first-served basis even though my expiration date is 2 years away, or would others with a shorter term contract be given preference over me even though my buy-write transaction was done before their's were done?

    Also, if I sell an option, am i allowed to use the premium eventhough contract has not expired?

    I apologize for beginner questions. Thank you in advance.
     
  2. MTE

    MTE

    Essentially it can be anyone who has an open long position in that particular contract. It has to be the same expiration and strike, and not just the same strike!

    Yes you can use that premium.
     
  3. The call you sold could still be held by the original buyer or it could have been bot and sold 100 times over. It doesn't matter who holds it now or whether it is in, at or out of the money.

    Existence of shorter term contracts has no bearing on you and assignment. If someone exercises a long call with the exact terms as yours (month, strike) then someone with that short position is assigned. Check with your broker to find out what their assigment process is.

    Keeping it simple, it is unlikely that you will be assigned if there is time premium remaining in your option since it would be more profitable (or less of a loss) for the holder to sell it rather than exercise it. For you, early assignment would be a gift since you could turn around and immediately re-sell that option, if so inclined.