Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Credit Spread Assignment - Help!
Old 01-10-2015, 07:51 PM   #1
Dryer sheet wannabe
 
Join Date: May 2011
Posts: 22
Credit Spread Assignment - Help!

Hi,
Sorry, but, i didn't know who else to ask this ( my brokerage, tradeking, is closed on weekends for customer support), would really appreciate your input.

On friday, while SPY was trading at 204.32, i did a bull put credit spread. To wit, Sold a SPY 204 put and bought a SPY 203 put. At closing, SPY traded to 204.25. So, naturally, i thought that i was safe as both puts would expire worthless, instead, my long put (203 SPY) expired worthless, but, i got assigned on my short put (204 SPY), $20,400 (yikes). How is that possible?, when SPY closed at 204.25 ?

Thanks
__________________

__________________
atfourty is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-10-2015, 09:06 PM   #2
Thinks s/he gets paid by the post
 
Join Date: Sep 2012
Location: Seattle
Posts: 2,904
I try to close out my option spreads early to minimize assignment. I know it is tempting on a bull put spread to want to avoid transaction costs and let it expire worthless but when it is very close to being in the money there is a danger of exactly what happened to you. Now you are stuck waiting until Monday to sell the shares and hoping that bad news doesn't come out Sunday and cause SPY to open at $198.

I also prefer bull call debit spreads even though they require the extra transaction to close out. Early assignment on those just puts you short a bunch of shares and you own the deeper call to cover those. If the market shoots up before you can cover the short, you can just exercise the calls to cover the short shares.
__________________

__________________
Fermion is offline   Reply With Quote
Old 01-10-2015, 09:28 PM   #3
Recycles dryer sheets
Rothman's Avatar
 
Join Date: Apr 2013
Posts: 249
Looking at SPY chart for the day it was in fact below $204, it hit $203.52 earlier in the day. So I'd say you are in fact exposed, think good thoughts for a smooth open Monday morning.


Sent from my iPad using Early Retirement Forum
__________________
Rothman is offline   Reply With Quote
Old 01-10-2015, 10:04 PM   #4
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Eagan, MN
Posts: 3,040
You sold the 204, which gave you the obligation to purchase SPY at 204. You should have been safe, as the closing was 204.25. BUT, the put can be assigned, even though it doesn't make sense.

I had a covered call that was assigned once. The buyer took my shares, even though they could have bought them on the market cheaper, without buying the time component.

You will be forced to buy SPY at 204 and sell right away, or just buy another PUT at 203 for a $1 risk on the trade, plus the premium. Or hold the shares. Or sell a call on them. After hours it closed at $203.86.

It's been a while since I have played with options, I was mostly a covered call guy. Keep rolling the calls until they expire. It a fast moving upward market, it is difficult at times.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator is offline   Reply With Quote
Old 01-10-2015, 10:18 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Apr 2013
Posts: 5,560
Quote:
Originally Posted by Rothman View Post
Looking at SPY chart for the day it was in fact below $204, it hit $203.52 earlier in the day. So I'd say you are in fact exposed, think good thoughts for a smooth open Monday morning.


Sent from my iPad using Early Retirement Forum
+1
My understanding is it doesn't have to be the close price. If the owner of your naked put closed out his position you get assigned.

Sent from my SAMSUNG-SGH-I337 using Early Retirement Forum mobile app
__________________
MRG is offline   Reply With Quote
Old 01-11-2015, 01:09 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
I had a similar thing happen to me got assigned an SPY put when the market opened much lower but rallied late in the day to close out of the money. SPY continued to up the next I sold made money. I have had the opposite happen and lose money, although it was more complicated so I forget the details.

I have had in the money options exercised almost two full weeks ahead of the exercise dates, it happens. One of the risks of options.
__________________
clifp is offline   Reply With Quote
Old 01-11-2015, 06:14 AM   #7
Recycles dryer sheets
wingfooted's Avatar
 
Join Date: Jul 2011
Location: Oregon - Dry Side
Posts: 218
If at option close, the underlying is 'close' to the strike price, then the counterparty - in your case the buyer of the 204 put - has the option to either let the position expire or to exercise.

So you are long 100 shares going into Monday open.


A lot of folks in this position
would simply turn around and sell the weekly 204 call to capture premium.



Sent from my iPhone using Early Retirement Forum
__________________
wingfooted is offline   Reply With Quote
Old 01-11-2015, 07:08 AM   #8
Dryer sheet wannabe
 
Join Date: May 2011
Posts: 22
Thank you for all the replies, i understand now.

LESSON LEARNED : The only way to guarantee NO-Assignment is to close out the position before expiration.
__________________
atfourty is offline   Reply With Quote
Old 01-11-2015, 07:54 AM   #9
Thinks s/he gets paid by the post
FIRE'd@51's Avatar
 
Join Date: Aug 2006
Posts: 2,315
This is one of the reasons I prefer to trade SPX credit spreads since they are European and cash-settled. What happened to you with SPY options couldn't happen with SPX's.
__________________
I'd rather be governed by the first one hundred names in the telephone book than the Harvard faculty - William F. Buckley
FIRE'd@51 is offline   Reply With Quote
Old 01-11-2015, 09:20 AM   #10
Thinks s/he gets paid by the post
 
Join Date: Nov 2006
Posts: 2,268
Same thing happened to me. I was short 10 weekly SPY 204 puts and got assigned. Its not a bad thing though. It just adds more risk. My trade had a $1400 profit as of Fridays close. Now it will have more or less.
__________________
utrecht is offline   Reply With Quote
Old 01-11-2015, 12:28 PM   #11
Dryer sheet wannabe
 
Join Date: May 2011
Posts: 22
Quote:
Originally Posted by utrecht View Post
Same thing happened to me. I was short 10 weekly SPY 204 puts and got assigned. Its not a bad thing though. It just adds more risk. My trade had a $1400 profit as of Fridays close. Now it will have more or less.
But, wouldn't you worry about monday open?
__________________
atfourty is offline   Reply With Quote
Old 01-11-2015, 02:01 PM   #12
Recycles dryer sheets
wingfooted's Avatar
 
Join Date: Jul 2011
Location: Oregon - Dry Side
Posts: 218
The worst that can happen is that the S&P 500 will go to zero and the OP loses $20K.




Sent from my iPhone using Early Retirement Forum
__________________
wingfooted is offline   Reply With Quote
Old 01-11-2015, 02:03 PM   #13
Dryer sheet wannabe
 
Join Date: May 2011
Posts: 22
Quote:
Originally Posted by wingfooted View Post
The worst that can happen is that the S&P 500 will go to zero and the OP loses $20K.




Sent from my iPhone using Early Retirement Forum
Man!, if the s&P 500 opens at zero, we have way more issues than my losing 20K.
__________________
atfourty is offline   Reply With Quote
Old 01-11-2015, 02:21 PM   #14
Thinks s/he gets paid by the post
 
Join Date: Sep 2012
Location: Seattle
Posts: 2,904
Quote:
Originally Posted by wingfooted View Post
The worst that can happen is that the S&P 500 will go to zero and the OP loses $20K.




Sent from my iPhone using Early Retirement Forum
If the S&P500 goes to zero I am going all in. I can find $1 in coins somewhere. Imagine getting 500,000 shares of Apple, 2,000,000 shares of Google....
__________________
Fermion is offline   Reply With Quote
Old 01-11-2015, 04:32 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,255
Quote:
Originally Posted by atfourty View Post
... but, i got assigned on my short put (204 SPY), $20,400 (yikes). How is that possible?, when SPY closed at 204.25 ?

Thanks
I've seen that happen, called my broker about it. I was told that the option buyer can still sell that option for some time (20 minutes at my brokerage, IIRC) after the market closes.

Did SPY drop further after the close? OK, this link shows it dipped below 204...

SPDR S&P 500 ETF (SPY) After Hours Trading - NASDAQ.com

So I guess he could buy some slightly below 204, and deliver them to you at 204. Someone with low transaction costs could pull this off I think. It is guaranteed for them.

So yes, if it is close, the only sure thing is to pay the transaction costs and spread to close it out before the market closes.


-ERD50
__________________
ERD50 is offline   Reply With Quote
Old 01-11-2015, 05:36 PM   #16
Thinks s/he gets paid by the post
 
Join Date: Nov 2006
Posts: 2,268
Quote:
Originally Posted by atfourty View Post
But, wouldn't you worry about monday open?
Yes, like I said I have added risk, but the market can open up just as easy as it can open down. If you sell naked options long enough this will happen enough times that it work out even in the long run.
__________________
utrecht is offline   Reply With Quote
Old 01-12-2015, 08:35 AM   #17
Thinks s/he gets paid by the post
 
Join Date: Nov 2006
Posts: 2,268
I sold my 1000 shares of SPY for 204.50. An additional $500 profit on my option trade.
__________________
utrecht is offline   Reply With Quote
Old 01-12-2015, 08:53 AM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,255
Quote:
Originally Posted by utrecht View Post
I sold my 1000 shares of SPY for 204.50. An additional $500 profit on my option trade.
I hope the OP was quick on the draw, SPY went south shortly after the open.

-ERD50
__________________

__________________
ERD50 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
After-Market Assignment 2.5 years 5% rec7 FIRE and Money 0 12-06-2011 11:40 AM
Unusual Options Assignment FIRE'd@51 Stock Picking and Market Strategy 12 01-23-2011 02:01 PM
International Assignment or ER?? shiny Young Dreamers 40 02-26-2007 12:11 PM
How to answer questions. ???With a question or assignment????? dex Forum Admin 2 02-25-2007 08:56 AM
FIRECalc - Retire Early Spread Sheet Comparison Merron FIRE and Money 9 11-06-2003 03:09 AM

 

 
All times are GMT -6. The time now is 02:07 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.