Still a bit confused. I sold a cash secured put and it hit the strike price but hasn't expired and it still has a few weeks to expiration. 1. Do i have to wait for expiration, or for them to exercise it? 2. Can i do something to close it if i wanted to? Or am i stuck waiting for them to either exercise it or let it expire?
You can close option trades at any time - you can buy back the put to lock in whatever P/L you see. If you sold the put for $1.00 and you buy it back for $0.20, you would lock in 80% profit and 80 cents total, for example. Assignment is random, but rare as long as the ITM short option has extrinsic value. It will be exercised if held through expiration and also ITM.
So what if my Long call is $100 and my short call is $110. The stock is worth $120. Is there a high chance of me getting assigned? Can I just sell the debit spread to avoid assignment? Also, what are the downsides to buying an ITM long call and then selling an ITM short call? It seems like a high probability way of making money?
Yes you can sell the debit spread to avoid assignment - if there is a lot of extrinsic value in the short option assignment risk is very low. Either way, even if you're assigned the risk doesn't change in the trade since you own the long call offsetting short share risk. In a lot of cases, if you're assigned early and there was a lot of extrinsic value in the short option still, your trade can become more profitable than before. I welcome assignment for this reason if it's going to happen. An ITM debit spread is the same trade as an OTM credit spread on the same strikes. There is no difference between an ITM call debit spread and an OTM put credit spread, aside from the fact that an ITM debit spread will be much less liquid than an OTM credit spread.
Hi Mike - Question(s) on early assignment. I've got a debit call spread that might go in the money (both legs) well before expiration (30 days early) what happens to the open p/l running on the options when they go in the money before expiration and get assigned? Will my final P/L be based on intrinsic value only or will I take on the losses from the extrinsic value as well?
It would be intrinsic value only if held to expiration, since the ITM long option protecting the risk on the short option would be trading for intrinsic value.
You would be put in a margin call, which just means the broker would require you to either close the position (buy to close or sell to close the shares, depending on whether you're long or short) yourself or add capital to the account so you can hold the shares.
Sorry Ravi! If I confused you it was unintentional. I don't read from anything during my segments - I can see the visuals and I talk about the main points from those. My apologies!
it would be cool if tastytrade was available in Canada
Still a bit confused. I sold a cash secured put and it hit the strike price but hasn't expired and it still has a few weeks to expiration.
1. Do i have to wait for expiration, or for them to exercise it?
2. Can i do something to close it if i wanted to? Or am i stuck waiting for them to either exercise it or let it expire?
You can close option trades at any time - you can buy back the put to lock in whatever P/L you see. If you sold the put for $1.00 and you buy it back for $0.20, you would lock in 80% profit and 80 cents total, for example.
Assignment is random, but rare as long as the ITM short option has extrinsic value. It will be exercised if held through expiration and also ITM.
So what if my Long call is $100 and my short call is $110. The stock is worth $120. Is there a high chance of me getting assigned? Can I just sell the debit spread to avoid assignment? Also, what are the downsides to buying an ITM long call and then selling an ITM short call? It seems like a high probability way of making money?
Yes you can sell the debit spread to avoid assignment - if there is a lot of extrinsic value in the short option assignment risk is very low. Either way, even if you're assigned the risk doesn't change in the trade since you own the long call offsetting short share risk. In a lot of cases, if you're assigned early and there was a lot of extrinsic value in the short option still, your trade can become more profitable than before. I welcome assignment for this reason if it's going to happen.
An ITM debit spread is the same trade as an OTM credit spread on the same strikes. There is no difference between an ITM call debit spread and an OTM put credit spread, aside from the fact that an ITM debit spread will be much less liquid than an OTM credit spread.
@@tastyliveshow Thanks for the reply! I've asked the same question on so many vids of the same topic and you're the only one that replied!
Hi Mike - Question(s) on early assignment.
I've got a debit call spread that might go in the money (both legs) well before expiration (30 days early)
what happens to the open p/l running on the options when they go in the money before expiration and get assigned? Will my final P/L be based on intrinsic value only or will I take on the losses from the extrinsic value as well?
It would be intrinsic value only if held to expiration, since the ITM long option protecting the risk on the short option would be trading for intrinsic value.
tastytrade thanks mike.
Why are you talking about TD Ameritrade fees? I was curious about what the tastywork fees are for assignment
These videos are super old - tastyworks.com assignment fee is $5 per leg
What happens if you are assigned in a smaller account without enough cash to cover the purchase price?
You would be put in a margin call, which just means the broker would require you to either close the position (buy to close or sell to close the shares, depending on whether you're long or short) yourself or add capital to the account so you can hold the shares.
This video is a really unprepared video from Mike....confused the heck out of me..He is trying to read from a board or something..
Sorry Ravi! If I confused you it was unintentional. I don't read from anything during my segments - I can see the visuals and I talk about the main points from those. My apologies!
I have watched many videos..Most of them are excellent. Whatever little knowledge I have got is mostly through Tastytrade..Thanks to you guys.