Was trying a new strategy with writing options. I wrote just 1 SPY DEC20 319.50 call and someone assigned it to me when the price of SPY was 319.39 which seemed weird. I read that assignments are rare and was not expecting my very first option to be exercised. Anyone have any insight into why someone would do this? SPY immediately went up in pre-market from the 319.39 price, but I was assigned at exactly 4:30am EST
Didn’t have time to check but I think SPY had a dividend last night, so someone or an algo needed the shares to get the dividend. The reported time may be wrong, should be assigned before midnight.
I checked my broker and yahoo finance and both were showing the September ex dividend date. Another source said dec 20th when googling which makes sense. All their historic dividends are around the 20th and quarterly.
It looks like SPY did have a dividend, but the transaction date still says 12/20. Hoping I'm not on the hook for that divy.
As you noticed, dividend distribution is almost always the reason options are exercised early. Of course the probability of exercise is still present, but on an underlying that isn't paying/not due to pay a dividend the probability is extremely low. You might've been attracted because of the ATM IV pop on ex-dividend. Classic noob trap. The good news is it looks like you're not going to get hosed on delivery. I believe you might be on the hook for the dividend if you were naked. Next time stick to SPX/RUT or roll your option. Remember if it looks too good to be true, it usually is.
About 7% of options are exercised and I would expect that other than near the ex-div date. more of them happen near expiration than before. The 4:30 AM assignment time is probably the time that your broker was notified of assignment. The exercise occurred the day before. You are not on the hook for the dividend unless it was a naked call resulting in a short share position on the ex-div date.
It was a naked call as I did end up with a short position and an extra $31,950 in my account when i woke up this morning. I think I'll probably call my broker though and ask when it was assigned. $157 isn't a whole lot of money for a mistake luckily.
SPY and many SPDR sector ETFs have ex-dividend on the quarterly option expiration (Quad witching Friday). https://sixfigureinvesting.com/2010...-mtk-rwr-xlb-xle-xlf-xli-xlk-xlp-xlu-xlv-xly/ If you have ITM calls then they will likely get assigned on the prior day provided that the premium left on the call is less than the expected dividend. I think you're still on the hook regardless if you own or do not own the shares. If you own the shares, the shares get taken from you before the ex-dividend date so you no longer receive the dividend that you would have received had you held shares. If you don't, then you end up short shares on Monday and you owe a payment-in-liue dividend payment to the owner of the shares you are now short.
UPDATE: Broker said I'm not on the hook for the divy. He said I'd only have to pay it if I held my short position until the day of record which would be Monday.
Personally I believe your broker may be wrong (whoever you spoke to) because there are very advanced algos that do those options assignments, while: https://www.optionseducation.org/referencelibrary/faq/options-exercise “Options exchanges have a cut-off time of 4:30 p.m. CT, for receiving an exercise notice. ” A broker may show a time when they processed the assignment, but the instructions come from options clearing authority/exchange that received a request from someone else to exercise their options the night before. And really you’ve sold a call for more money because the call price was inflated due to that dividend, and professionals don’t lose money by buying overpriced options from you Unless your broker is so clueless that they will lose money themselves on this deal...