6
votes
When buying a call option, is the financial stability of the option writer relevant?
In the case of regulated, exchange-traded options, the writer of an options contract is obliged to maintain a margin with their broker, and the broker is obliged to maintain a margin with the clearing ...
- 6,370
4
votes
Accepted
How are option contracts assigned?
Is the other side of my contract tied to a specific buyer?
No, the OCC is the entity on the other side of your transaction.
If I'm short a call, and the contra exercises their option, how is ...
- 124k
4
votes
Accepted
Does option delta predict expiration probability?
Googling "delta probability expiration" will offer lots of references on the web that discuss delta as a proxy for the probability of expiring in-the-money.
Delta is an approximation of the ...
- 75.5k
3
votes
Is it necessary to have 100 x strike price in cash or margin before entering a naked call credit spread?
First, a small terminology correction. You don't buy a naked call. That's an outdated form of description from decades ago. A naked call is a short call that is not covered by long stock or a long ...
- 75.5k
3
votes
does naked call option assignment result in stock borrowing fees?
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 ...
- 75.5k
2
votes
Accepted
Does dividends lead to early assignment of put option, or just call option
Yes.
The put owner isn't likely to put it to you based on the dividend which follows ownership of the shares. He may still exercise the put at his whim, but not for this reason.
2
votes
Option settlement for calendar spreads
First off, you should phone your broker and ask them just to be 100% certain.
You will be exercised on the short option that was in the money. It is irrelevant that your portfolio does not contain ...
- 101
2
votes
Accepted
Do I just let an options conversion/reversal trade go to expiration?
To Chris' comment, find out if the assignment commission is the same as the commission for an executed trade. If that does affect the profit, just let it expire.
I've had spreads (buy a call, sell a ...
2
votes
Accepted
When buying back a put option, what happens to the buyer?
You don't necessarily buy back the put option from the original buyer - it is most likely a different seller that is opening a new position or closing an existing one. The exchange/clearing house will ...
- 124k
2
votes
Accepted
What to do with a call I sold
The best thing to do depends on what the stock actually does going forward.
If NCLH is above $16 at tomorrow's close, you will be assigned and your shares will be sold at $16.
If you buy back your ...
- 75.5k
1
vote
Bought Put Options that are getting close to Expiration
You bought put options which are now in-the-money, so you have 3 choices:
Sell the put options to close your position
Exercise the put options (sell the relevant shares). If you don't have any ...
1
vote
How far from the strike price is an option contract being exercised?
According to the OCC, about 7% of contracts are exercised.
In general, it makes no sense for someone to exercise an option that still has time premium remaining it it because doing so throws away that ...
- 75.5k
1
vote
When buying back a put option, what happens to the buyer?
If I sell a put option and buy it later back, what does that mean for the buyer? Can he now sell the shares to my seller?
You are buying to close your short put. If your counter party is selling to ...
- 75.5k
1
vote
Is it necessary to have 100 x strike price in cash or margin before entering a naked call credit spread?
The broker will let you make this trade, although probably not allow you to sell the 151 call after you buy the spread. The systems are smart enough to know that the 151 call is protecting you from ...
- 11
1
vote
Do call options expiring ITM increase the stock price?
I can't give you a sourced factual answer since I'm not a market maker, the CBOE or a professional. However, I can provide some info for forming an opinion.
OK, one fact. The last CBOE stat that I ...
- 75.5k
1
vote
Accepted
Selling a put option and getting assigned
When you sell an option, you get to keep the premium no matter what when it expires. This may or may not be a profit because if assigned, your purchase (or sale) price at the strike price could be ...
- 75.5k
1
vote
Why roll a credit spread out and keep the same strike price?
You've asked a lot of questions so this is going to be a really long answer.
AFAIC, the first podcast by Russ Mathews is a combination of sloppiness and snake oil. I listened to some of the latter ...
- 75.5k
1
vote
Accepted
Is a credit larger than the spread width bad in a credit spread?
If this is a $215/$217.5 vertical spread for a credit of $251 then you have indeed found a risk free position and you will make $1, assuming that you do not pay commissions or assignment/exercise ...
- 75.5k
1
vote
Accepted
When does an option assignment actually get fulfilled?
During any given trading day, options owners submit their exercise notices (in this case, Friday). In the evening, the OCC uses a "Wheel" to randomly determine who will be assigned and notifications ...
- 75.5k
1
vote
Does option delta predict expiration probability?
Delta is a very poor approximation of the risk neutral probability that the option will expire in the money.
N(d2) is the actual probability, which eventually becomes zero for very long dated options ...
- 1,556
1
vote
Odds of early assignment for a short in the money call
Pending dividends affect time premium (puts increase, calls decrease). If an ITM call is near expiration and the dividend is large, the call may have no time premium whatsoever. It may even trade ...
- 75.5k
1
vote
When buying a call option, is the financial stability of the option writer relevant?
Exchange traded options are issued in a way that there is no counter party risk.
Consider, stocks and options are held in street name. So, for example, if I am short and you are long shares, no ...
1
vote
Accepted
What happens when the short leg of a credit put spread is assigned, but there is not enough liquidity to close the long leg?
The long option can always be exercised, it doesn't need liquidity.
But what can happen is that the underlying expires between the options, in which case the short option will be assigned, and the ...
- 595
1
vote
Accepted
Is an ITM option bought/sold to close in addition to being assigned?
The option is exercised. The option is converted into shares. That is an optional condition in closing that contract, hence why they are called options.
- 20.1k
1
vote
Do I just let an options conversion/reversal trade go to expiration?
This depends on a combination of factors: What are you charged (call it margin interest) to hold the position? How does this reduce your buying power and what are the opportunity costs? What are the ...
- 131
1
vote
Covered call and put options as separate trades
Owning 100 shares and selling a covered call to fund the purchase of a put is called a long stock collar. If the strikes are different, it is equivalent to a vertical spread. If they are of the same ...
- 75.5k
1
vote
Covered call and put options as separate trades
Yes, if the call expires worthless, leaving you with stock. Then you can exercise your put when the stock goes below put strike price.
- 15.8k
1
vote
What are my risks of early assignment?
Per CBOE stats, only about 7% of options are exercised.
There are several reasons why an option might be exercised early:
The owner doesn't know any better and throws away remaining time premium, ...
- 75.5k
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