Question for the experts

Discussion in 'Options' started by gkishot, Jan 11, 2006.

  1. Would it be correct to say that the deeper written calls are in the money the higher chances they have to be assigned before maturity? So deep in the money calls may be assigned even multiple times before expiration?
     
  2. MTE

    MTE

    ITM options have a greater chance of getting assigned early, but you can only exercise your options once, unless you mean exercising only a portion of them at a time.
     
  3. Not an expert by any stretch of the imagination but...

    Assuming you are referring to American style options, essentially the answer is yes.

    However, dividend issues aside, in practice, you are not likely to be assigned on a short call more than 2 weeks out from expiration as the option is likely to have extrinsic/time value which would be sacrificed if exercised by the holder. Have to see where the option is trading in relation to parity to make this judgement.

    MoMoney.


     
  4. Only American style options can be exercised/ assigned before expiration.

    An exercise/ assignment cannot happen multiple times.

    An excercise/ assignment before expiration is on the initiative of the buyer, for whatever reasons.

    Mostly of course buyers do it when it's In The Money and they do not care about the remaining time premium. I would imagine intended stock owning as a possible reason. That's why exercise instead of sell and gain time premium.

    Whether a deep In The Money written call in an American style option has a higher chance of being assigned before expiration than another less deep In The Money written call, is something I don't know/ can't answer, but I do not see any reasons for it. Maybe someone can help on this point.
     
  5. Doh! :eek: I think you need to think about that one lol.
     
  6. Ohh....thought of an idea....

    I guess since a deeper ITM option has less time premium than less deep ITM option, so probably there is a higher chance of it being exercised/ assigned, because the buyer will sacrifise less time premium.

    Theoretically. Don't know how significant or real this is though, in real world practice. I don't think there is a significant effect? The difference between assignment chance of very deep and not-so-deep ITM options.
     
  7. Why? I cant figure out what's wrong with the logic that they sacrifice remaining time premium instead of selling, and I would imagine a possible reason could be intended stock ownership.

    Tell me.
     
  8. If stock ownership was the objective, one could go into the open market and buy the stock - that would not be a good enough reason to sacrifice the time premium, execution costs aside.

    MoMoney.


     
  9. Ohh....you're absolutely right......then there won't be any reasons to exercise before expiration? Unless if the remaining time premium is sooo small, smaller than execution costs of selling it and buying the stock?

    Btw what do you think about very deep ITM options having higher chance of being assigned compared with less deep ITM options before expiration?
     
  10. Yes, one has to take a view on how much time value is "too small" and run the numbers.

    I think that's right.

    MoMoney.
     
    #10     Jan 11, 2006