I've noticed that a lot of OTM call options have bid prices that are below intrinsic value. If I sold at the bid, is the risk of early assignment 100% in these cases? Wouldn't the market maker just immediately exercise it for a risk free profit?
Have you factored in dividends? Also while prices appear on a screen they may not exist when you try to trade. I would never sell at the bid -you sure about those prices?
You should say sell at the bid to open the trade. If you are long (own) you might for some reason want to close your position by selling an illiquid option i.e. deep in the money option. at the bid. One reason might be that you can't or don't want to exercise the option.
What do you mean by 'below intrinsic value'? Unless I misread your post, OTM options have no intrinsic value.
Yeah, I'd been wondering if I was misreading something. Especially since several knowledgeable folks had already answered this as if the basic premise wasn't broken to start with. OTM = extrinsic value only. And assignment risk only - or at least the majority of the time, with some notable exceptions - applies to options that are ITM, not OTM. Given that... was there any actual meaning to the question? I didn't see any.
Asusuming we are talking ITM,how would a market maker make money buying an option at a discount from parity and why would he exercise it immediately?? Let's not talk carry costs..
As many have stated to you OTM options have no intrinsic value; that's why they are called OTM. So it is meaningless to compare their option price to the intrinsic value. I think what you are trying to say is many options have an option bid price that is higher than zero when their intrinsic value is below zero. Is that what you are trying to say? But regardless what you are trying to say, selling an option at the bid has no impact on the probability of being subject to an early assignment. Early assignment risk is not related to an option's moneyness; it has to do with the future prospect of the underlying. And besides I dunno when you are seeing these prices. Are you seeing them during non-trading hours or during active trading hours? If you are seeing these prices during non-trading hours, these are not true option prices that reflect their true value. They are more of a range of the lowest and highest price that the option has ever reached. All of the option prices that you see during non-market trading hours will be adjusted once the market starts trading. You are either a troll or are very confused about many of the important concepts of options. If you are the latter, I strongly suggest you to read more on options regarding its basic concepts and its trading principles. You have zero understanding of either of them right now.