1

If I write a naked call option which gets exercised early, will I have a chance to purchase the stock to cover the call or will I already owe a stock borrow fee by the time I am notified of the assignment?

Example:

  1. On Monday I sell a call option
  2. On Monday night the purchaser exercises his call
  3. On Tuesday morning I am notified of the assignment, making me short the underlying stock at the strike price
  4. On Tuesday afternoon I buy enough stock to close the short position

Do I owe a stock borrow fee for the Monday-Tuesday overnight short? Or does my short position start and end on Tuesday meaning that I never had to borrow the stock at all?

2

When assignment occurs, you are notified that you are short the stock as of Tuesday morning. Buying the stock to cover on Tuesday will not result in a borrow fee.

Of greater concern is the opening price of the stock on Tuesday. If you are short the stock and it opens higher, you're not a happy camper.

You're probably already not a happy camper because if you sold the call on Monday (which should have had some time premium) and on Monday night the call owner decides to exercise his call, that implies that the stock has risen.

A knowledgeable owner of a long option would not exercise early if there was time premium remaining because exercise would result in throwing away that time premium. Apart from a collapse in implied volatility (much less likely), only significant underlying price movement would eliminate that time premium.

0

unfortunately, it looks like i will get charged.

this morning i was notified that the sale of an assigned call would be dated as of yesterday. here is an excerpt from the email i received:

From: Interactive Brokers Client Services

Date: 2018-09-20 at 2:03 AM

...

In accordance with the option assignment procedures, these contracts have been removed from your account and the associated purchase or sales transaction(s) in the underlying asset(s) booked with a trade date of 2018-09-19.

since the trade date will be yesterday, i assume i will get charged a borrow fee. i'll update this post once that fee shows up in my account statement to confirm.

side note: since the borrow rate on this particular stock is nearly 50%, that means i will be charged about 0.14% of the stock price for that single unavoidable day. this is particularly painful because the stock price has been soaring lately, putting it well above the strike prices of the option combo in question.

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