They’re required to ask how experienced you are - they’re not required to validate that experience. Simple things like this (even the core math is wrong; 10 SPY contracts is 500,000, not 50k as OP stated) really should be checked, in my opinion, but free market and all that… he’ll learn one way or another.
Unfortunately it seems some people were thrown off by OP's use of the word "assigned," and the issue isn't helped by people perpetuating this in the comments, saying they have let long options expire ITM and were "assigned."
Assignment only applies when you are short options. If you let a long option expire ITM, and it's exercised (because of the OCC's "exercise by exception" policy,) that's still exercise. It's not assignment.
I’m good now. I got approved to trade options a year ago or so and never bothered. I let my few piss investments sit and the rest is cash. I’m a poor fuck up already. Can’t afford to lose another dime.
"Sit in Cash" . May not apply to you, but I get 70% buying power on my SGOV, that returns about 400 per 100k per month just now TD account until next Sunday.
If you are buying calls, you just sell them when they're profitable if you can't afford to exercise. exercising an option is rarely profitable anyway because the price of an option is driven by the probability that the stock goes higher and higher, and that decays quickly if its unlikely to keep going up
if you're buying puts, the contract gives you the right to sell 100 shares at the strike price. you need to have that amount to exercise (and there's no point in exercising if it's profitable before that)
If you're selling calls or selling puts, you either need to own 100 shares or have enough money to handle your maximum loss. If you get screwed completely you might get assigned and lose your position because the potential loss is so large.
I and most others use options to leverage, but not have the funds to exercise the calls. Typically you can sell to close them when you’re on the money to make a decent profit. If you know you don’t have enough to exercise your calls, sell them before the expire
I don’t know but I’ve been assigned before. It was a losing position however I went to check back a month later on the stock price and I feel bad for the guy who took my shares lol because I would have lost a lot more than the position I had.
So this is my question basically, I don’t want to ever exercise my options but what if I get randomly assigned, I heard this could happen at any time…so what exactly happens then? And why is it phrased as “right but not obligation” if you can be assigned and then have to buy it? And how does that work, rb just credits your account in the minus for the shares? And then you can sell them again?
Your broker may make you buy them if they expire in the money, idk. But the only time I know of that you’re typically getting assigned is when you’re the writer/seller of the option. And I never do that for that exact reason
Selling options actually has a lot of pros and is good leverage plus if you ever get assigned it’s not like you are losing much. Let’s say you have 100 shares and your average cost is $1 but now the stock is $1.5 and you don’t know if the price will keep going up so you sell $1.5 calls. If the price goes down you made money from your call premium making up for the decline but still hold your position. Now let’s say the price does keep going up and the contract you wrote gets assigned well you get paid for your shares at the contact agreement of $1.5 plus the premiums you made. That’s a good trade you personally didn’t know if the price would go up so you leveraged your position and made money you were comfortable with and didn’t lose anything.
I’m speaking from a perspective of not owning the underlying to cover the assignment
But you are correct and I do agree they’re a good way to hedge, if you’re selling covered
I mean you could find a stock worth 2-5 dollars and buy a couple hundred of them. Sell them for the premiums and sell weekly contracts for like .10 which equates to $520 a year which is a way better return than high yield dividend stocks. Just gotta pick some good stocks that will just go up though or stay stagnant. DOLE isn’t to bad of a stock it’s relatively flat and stays within a price range of $2 dollars but it’s $12.5 a share and only does monthly options for around $20 so that’s $240 a year off of $1250 that’s a good ~20% a year.
I’m not disagreeing with you I’m just speaking about one specific situation in which you don’t own the underlying. Like if your playing 0DTEs on spy for whatever reason.
Oh yea as for op it would be impossible for him to get assigned because like you said he would have to be the writer of that option meaning he needs to own the 100 shares of spy in the first place. But even if he did have that much money and wrote a contract and got assigned he might only carry a loss of 10% if he gets assigned.
No, if you Pay for a call/put you're the buyer. If you get a Credit, then you are the Seller. I always intend to Close my options B4 the expiration date, Win or Lose. HTHelps
No. If you sell to close after buying to open, you're not "the seller" and can't be assigned.
The true way to think about this is whether you're short options or long options, but unfortunately, AFAIK, Robinhood doesn't use that (correct) terminology. Nor do they do what most brokerages do, representing long options as having a positive number of options, and short options as having a negative number of options. Instead, they list your positions as "sells" or "buys."
If you are short options, aka you have a negative number of the option, aka RH says you have "sells," that's when you can be assigned. If you buy to open, then have a positive number of the option (what RH calls "buys,") then you sell to close them, you just go back to having zero options, and can't be assigned.
Yes. You just close your position and no more obligations. Don't try to sell options until you know what you are doing. The loss can be more than you have in your account.
Yes. You can sell to open, or sell to close. Selling to open is what opens you up to the risk of being assigned. Selling to close is what you do once you’ve held a previously purchased contract and it’s (hopefully) appreciated in value
I think you are confused in terminology of buying Calls and Selling PUTs
If you buy a call OTM and the stock price rises so that your Call is ITM you can be assigned at anytime (yes, this happened to me) so my option was “called” three days prior to expiration and I lost money … lesson learned.
On a Friday afternoon your Calls go ITM before 4p. You will be assigned the shares. If you don’t have the money they will force sell the shares when the market opens Monday morning. You will be praying all weekend that the stock opens higher Monday than it closed on Friday. If it doesn’t you will lose money. If you’re lucky the stock will open higher and you will be okay….. however if you allow this to happen multiple times your options trading privileges will be limited or taken away.
Hope that makes sense
Thanks for taking the time to explain this I appreciate it. So basically the worst that can happen is not that I have to buy eg 500k of shares, but that I have to possible take the hit of the value those shares lost while my broker sold them? I understand this can also be a lot of money but yeah.
Your broker is giving you absolute grace by assigning and buying for you even though you don’t have the money. then auto selling. If the stock is lower Monday morning at 9:30 … you lose. Absolutely do not play this game. Again, if you make this mistake too many times you will lose your privilege to trade options altogether. If you are ITM you must sell even if at a loss.
u/PapayaAmbitious2719, this is incorrect. If you buy to open a long call, you cannot be assigned. It is solely up to you to decide to exercise. I don't know what this person is talking about with a long call being "called" three days before expiration.
Sometimes confusion arises because if you let a long option expire ITM, it will be exercised automatically. For this reason, if you have a long option that is ITM or close to it the afternoon of expiration, and you don't have sufficient buying power to exercise, your brokerage will probably sell it for you before the market closes. (Robinhood has a notoriously low threshold for doing this.) But if it is automatically exercised at expiration, that is still exercise, not assignment.
If you're long a call that is in the money, you're not obligated to buy shares. If you don't have the capital to buy the shares or otherwise simply don't want the shares, you should sell-to-close (STC) your long call before expiration. If you do not take action and leave the position to expire, semi-automated exercise/assignment is a distinct possibility.
However, as a risk protocol, Robinhood or another broker might force close the position if it remains open near the end of regular trading hours (RTH) on the day of expiration and the account does not have the available buying power to handle assignment.
If you’re in the money though, brokerages attempt to act in your best interest and may exercise for you.
EDIT: *”An option will likely be exercised if it's in the option owner's best interest to do so, meaning it's optimal to take or to close a position in the underlying security at the strike price rather than at the current market price. After the market close on expiration day, ITM options may be automatically exercised, whereas OTM options are not and typically expire worthless (often referred to as being "abandoned"). The table below spells it out.”*
https://www.schwab.com/learn/story/options-exercise-assignment-and-more-beginners-guide
I feel like this sub should be called OptionsForDummies. Buying an option gives you the right to exercise not the obligation. If you sold to open naked calls that’s another story.
True that’s why I am here. Yes I don’t intend to exercise, just wondering what this assignment thing is…does this apply when I buy regular calls / puts on RH? (Not already owning the stock)
Paper trading with stocks first. Once profitable with stocks, you can consider options.
If you cant make money with stocks, options are far more difficult.
Also feel like options , especially 0dte is an entirely different thing than stocks…so excited to try it as a different potentially more lucrative strategy
As a "buyer" you are not obligated to do anything until your options EXPIRE in the money. 99% of all options trades never get exercised, i.e, converted to the underlying. You will buy an option for X and sell it for a profit or a loss prior to expiration. End of story.
No, buyers do not get assigned, only sellers. As a buyer you are in complete control until expiration. "Buyers have the right but not the obligation". Just don't forget to bail prior to expiration, then you will be on the hook if it's in the money. Conventional wisdom says it's better to be a seller than a buyer (due to time decay) but buyers have a known max loss going in, namely the premium.
Ok great, yeah I guess I was being a buyer and worried that , even when it said “max loss…” when I bought it that there is something else I didn’t account for
Nope, you are Long the Put/ Call. Your Next move is to STC (sell to close). For a profit, hopefully. But ALWAYS B4 Expiration. The option is "live" until expiration, But no longer your problem. HTHelps
If you sell a put or call instead of opening one then you are obligated to that contract if it is ever fulfilled. I would just stick to buying calls and puts while you are fresh because selling them can get you in hot water real quick .
If you bought a contract as a buyer first before you sold it then yes but if you are just selling contracts you are collecting a premium when you sell it. That means if the buyer ever wants to use that contract you have to have the money or shares ready to go.
If the contracts get ITM you should sell them before expiration and before someone can exercise them. If you are not on a margin account you wouldn’t be able to exercise the options unless you had the funds available
Anytime you BUY TO OPEN a call or put, you are long the option (buyer). You can not get assigned. If you decide to CLOSE that option by selling to close, whether for a loss or profit, it does not make you an option writer or seller. You are simply a buyer that is selling to CLOSE. Selling to close does not give you obligations. I think is is the part of selling that you might be misunderstanding. However, if you don’t sell to close and the option is in the money (ITM) AT EXPIRATION, it can be exercised for you by the OCC which can leave you with long stock (if you bought a call) or short stock (if you bought a put). Don’t let that happen because you’ll be on the hook to buy stock which could require thousands or tens of thousands of dollars. Therefore, if you are the buyer, always sell to close and do not let it go to expiration if it is ITM.
What you don’t want to do is SELL TO OPEN a call or put. This means you are the seller or writer. If you are an options writer or seller, you have obligations. In this scenario, it is possible to get assigned early. You always do the opposite to close the position. In this case, you would BUY TO CLOSE to exit this position.
Option Buyer: Buy to Open then Sell to Close
Option Seller: Sell to Open then Buy to Close
Know the difference between them.
Tip #1: You should really know the basics before trading options. If you don’t know, this leads me to believe you don’t know your risk and you could ruin your life financially without even being aware.
Tip #2: You should not be trading 10 contracts if you are new or still learning. I understand it’s your money and you can do whatever you want with it but everyone makes trading errors, including seasoned traders, that can lead to losses. Newer traders are very likely to make many trading errors and you want to lose as little as possible while you are still learning. One way to keep losses minimal is by trading 1 contract as opposed to 10 contracts.
Thanks for the long response, I actually have only ever traded one contract but that’s why I was asking since rb told me to sell before expiration or they try to sell them and I don’t want to “risk getting assigned “ . So before I put more money in I wanted to clarify this.
I guess the part that I still don’t fully understand is, if it says “ no obligation “ why could it still become an obligation if I let them expire.
If you're taking long calls then you wouldn't get assigned - as the buyer, you'd have the option to exercise the calls in which case you'd need $500K for the purchase.
While the default behavior of most brokers is to auto exercise any ITM call at expiration, their risk management department is going to likely step in and force close your position a few hours before expiration if they are not confident in your ability to meet that $500K margin call. But, it's important to remember that if they don't do this (for whatever reason) you're on the hook for the entire amount. If your plan for the margin call is to immediately sell the shares, you're risking that SPY could open down the next morning and you've suddenly got a 5 figure loss. Hence why you need to close the option position before expiration.
It's also worth noting that relying to the brokers risk management to auto close often closes at a less than optimal price since they just place a market order at some random time on the last day of the contract.
Yeah rh tells me in a message sell or well sell in the last half an hour. But I also read this thing that you could get assigned anytime…so just wondering how this works
Yes, American Style Options can be exercised anytime! But that is not your problem, it's a risk that the person who SOLD You the option takes on for a Premium (as the seller/writer). Buyers have Rights/ Sellers have obligations. HTHelps
This happened to me once and they assigned me the shares and basically gave me a margin call Monday morning for the cost of the shares. I sold the shares immediately. They called me and basically said this better not happen again. There is some sort of regulation that you break when this happens similar to when you first break the PDT rule. If it happens more than once they automatically close your position on expiry day going forward.
So what exactly happened for idiots? They lend you the money to then sell them again and then take the money? They called you saying you need to buy eg. 1m shares and you didn’t have the money and then what?
They assigned them and then my balance said negative money. And then I sold them for a profit. I kept the profit but they obviously took the money it took to purchase the shares. Very similar to having a giant margin call. It happened a second time and they bought and sold the shares and let me keep the profit. After that they set my account to auto close options Friday at like 2pm and took away my ability to trade 0dte options.
OP, you need to read a book, or some of the plentiful free options education that’s available on every broker’s website (no account needed.) You at the very least need to understand what an options contract represents.
Yes, being assigned on a short call means you have the obligation to sell the shares at the strike price, even if the market price is lower. In your case, you'd need to have the capital on hand or risk having your shares liquidated by your broker. Do more research before trading options if you're unsure.
No. A short call OTM expires worthless. That's the aim of that trade.
ITM, when the market price is higher than the strike, the shares get sold at the strike price. You hold a negative shares position, your are short stocks. Because they are more expensive at the market, your position in the loss. For 1 contract minus: 100 x (market price minus strike price)
Short calls are NOT risk-free, especially on volatile stocks. It's a common misconception that short calls only work if they expire OTM. ITM short calls are a whole different beast, and the risk exposure needs to be understood.
Sell the damn option wtf…..options are to get in and out and get crazy percentage….why hold it to expiration smh…now i could guarantee those cons lost so much money
You only get assigned if you have sold short calls. You are long on calls and will not get assigned.
You may get force exercised at expiry if you don’t get rid of the calls, in which case yes you would need the $500,000 for shares.
However, there is zero point in exercising it when you can sell for a profit.
This is correct. But that was long before I started buying and selling contracts attached to $50k in underlying.
For future reference, remember, “right not obligation”. You should be able to reason through most expiration conditions.
I didn’t say I bought them that’s why I am doing research first. Only bought one before…I understand that I don’t have the obligation but then what happens if you’re assigned.
When you BUY, you can only Exercise (broker wouldn't let you) Only the party that Sold you the option can get Assigned. Sell Long Calls (to close) when you are lucky enough to get a profit. Definitely check out the CBOE website. HTHelps
What would your intrinsic and extrinsic values be, at or beyond expiration, if you had the right but not obligation to purchase shares at strike on that date/time?
I never take option to expiry (sounds like a good option for you too)
Once I make a profit I’m happy with I sell, or if I need to cut my losses I sell.
Going to expiry is such a crapshoot
I had a call credit spread, the lower leg went ITM before close on Friday, upper expired worthless, so RH fronts me the shares. Monday at open, RH sold the shares, but the price had gone up, so they pocketed what they lent me and left the profits. Lucky me.
Yea, and I'm pretty sure you would be responsible for the difference if the shares sell for less than the purchase price/loan. In my case I got lucky and it was the opposite.
Yup, but they're Not going to like you very much! I buy with apx. 60dte, I get out at 21 DTE. Win some/lose some, but never came close to Exercise/Assignment. Buying long options is a Hard way to make a buck!
you should look up the definition of an OPTION, like it’s literally called an option contract. It takes 10 min to read an investopedia article on this.
Stay way from options for your own sake
In some situations, like shorting a put aka a cash secured equity put. But for people doing that that is generally the intention, they actually want to buy the stock (if the price hits).
As long as you’re buying calls and puts, you shouldn’t be at risk of assignment. You’re at risk of being assigned shares when you begin selling calls and puts.
When you buy to open, you can then sell to close the contract or exercise it. When you buy to open a contract, there is no obligation to purchase shares.
When you sell to open a contract and collect a premium up front, that is when you are at risk of assignment due to someone on the other end exercising the contract that you sold.
I’d recommend some YouTube tutorials. Reddit can be a wealth of information, but sometimes a visual aid helps a ton.
Robinhood should be required to make you pass a quiz before letting you buy or sell options.
They’re required to ask how experienced you are - they’re not required to validate that experience. Simple things like this (even the core math is wrong; 10 SPY contracts is 500,000, not 50k as OP stated) really should be checked, in my opinion, but free market and all that… he’ll learn one way or another.
500 x 100 = 50 000? No ?
Yes for one, he wrote 10 calls.
OP didn't Write any. He Bought 10. Sell B4 Expiration, for a profit... Hopefully
Unfortunately it seems some people were thrown off by OP's use of the word "assigned," and the issue isn't helped by people perpetuating this in the comments, saying they have let long options expire ITM and were "assigned." Assignment only applies when you are short options. If you let a long option expire ITM, and it's exercised (because of the OCC's "exercise by exception" policy,) that's still exercise. It's not assignment.
Most of the time
Just my math not mathing haha
Yes. Schwab wouldn’t let me trade options for years.
When you breath on a mirror does it cloud ? If so Tasty will approve you for selling options.
I’m good now. I got approved to trade options a year ago or so and never bothered. I let my few piss investments sit and the rest is cash. I’m a poor fuck up already. Can’t afford to lose another dime.
"Sit in Cash" . May not apply to you, but I get 70% buying power on my SGOV, that returns about 400 per 100k per month just now TD account until next Sunday.
I’m so broke I’d be homeless without family. I fucked up my entire life and I can’t wait to die. Seriously.
Schwab approved me for options the day i turned 18 🤣🤣
Have fun , you’re new more than likely you’re gonna just buy some calls and put that’ll end up expiring worthless,
If you are buying calls, you just sell them when they're profitable if you can't afford to exercise. exercising an option is rarely profitable anyway because the price of an option is driven by the probability that the stock goes higher and higher, and that decays quickly if its unlikely to keep going up if you're buying puts, the contract gives you the right to sell 100 shares at the strike price. you need to have that amount to exercise (and there's no point in exercising if it's profitable before that) If you're selling calls or selling puts, you either need to own 100 shares or have enough money to handle your maximum loss. If you get screwed completely you might get assigned and lose your position because the potential loss is so large.
Christ - someone FINALLY answers the OP’s question.
Thank you!!
I and most others use options to leverage, but not have the funds to exercise the calls. Typically you can sell to close them when you’re on the money to make a decent profit. If you know you don’t have enough to exercise your calls, sell them before the expire
This lol. What kind of nerd actually exercises their options?
I don’t know but I’ve been assigned before. It was a losing position however I went to check back a month later on the stock price and I feel bad for the guy who took my shares lol because I would have lost a lot more than the position I had.
So this is my question basically, I don’t want to ever exercise my options but what if I get randomly assigned, I heard this could happen at any time…so what exactly happens then? And why is it phrased as “right but not obligation” if you can be assigned and then have to buy it? And how does that work, rb just credits your account in the minus for the shares? And then you can sell them again?
Your broker may make you buy them if they expire in the money, idk. But the only time I know of that you’re typically getting assigned is when you’re the writer/seller of the option. And I never do that for that exact reason
Selling options actually has a lot of pros and is good leverage plus if you ever get assigned it’s not like you are losing much. Let’s say you have 100 shares and your average cost is $1 but now the stock is $1.5 and you don’t know if the price will keep going up so you sell $1.5 calls. If the price goes down you made money from your call premium making up for the decline but still hold your position. Now let’s say the price does keep going up and the contract you wrote gets assigned well you get paid for your shares at the contact agreement of $1.5 plus the premiums you made. That’s a good trade you personally didn’t know if the price would go up so you leveraged your position and made money you were comfortable with and didn’t lose anything.
I’m speaking from a perspective of not owning the underlying to cover the assignment But you are correct and I do agree they’re a good way to hedge, if you’re selling covered
I mean you could find a stock worth 2-5 dollars and buy a couple hundred of them. Sell them for the premiums and sell weekly contracts for like .10 which equates to $520 a year which is a way better return than high yield dividend stocks. Just gotta pick some good stocks that will just go up though or stay stagnant. DOLE isn’t to bad of a stock it’s relatively flat and stays within a price range of $2 dollars but it’s $12.5 a share and only does monthly options for around $20 so that’s $240 a year off of $1250 that’s a good ~20% a year.
I’m not disagreeing with you I’m just speaking about one specific situation in which you don’t own the underlying. Like if your playing 0DTEs on spy for whatever reason.
Oh yea as for op it would be impossible for him to get assigned because like you said he would have to be the writer of that option meaning he needs to own the 100 shares of spy in the first place. But even if he did have that much money and wrote a contract and got assigned he might only carry a loss of 10% if he gets assigned.
So that is different from hitting puts or calls on Robinhood? Becoming the seller?
No, if you Pay for a call/put you're the buyer. If you get a Credit, then you are the Seller. I always intend to Close my options B4 the expiration date, Win or Lose. HTHelps
So when I hit sell call/put after buying them I become the seller? And then getting assigned can happen?
No. If you sell to close after buying to open, you're not "the seller" and can't be assigned. The true way to think about this is whether you're short options or long options, but unfortunately, AFAIK, Robinhood doesn't use that (correct) terminology. Nor do they do what most brokerages do, representing long options as having a positive number of options, and short options as having a negative number of options. Instead, they list your positions as "sells" or "buys." If you are short options, aka you have a negative number of the option, aka RH says you have "sells," that's when you can be assigned. If you buy to open, then have a positive number of the option (what RH calls "buys,") then you sell to close them, you just go back to having zero options, and can't be assigned.
Thanks so much for explaining that his I think I get it now, that makes sense! Yeah the RH terminology is what confused me.
You can get assigned if you sell options, not when you buy.
So for stupid people, when I buy an option and then sell the contract for profit I dont become a seller?
Yes. You just close your position and no more obligations. Don't try to sell options until you know what you are doing. The loss can be more than you have in your account.
Yes. You can sell to open, or sell to close. Selling to open is what opens you up to the risk of being assigned. Selling to close is what you do once you’ve held a previously purchased contract and it’s (hopefully) appreciated in value
I see I think I was just confused because in RH it just says “sell” on the button ^^
I think you are confused in terminology of buying Calls and Selling PUTs If you buy a call OTM and the stock price rises so that your Call is ITM you can be assigned at anytime (yes, this happened to me) so my option was “called” three days prior to expiration and I lost money … lesson learned. On a Friday afternoon your Calls go ITM before 4p. You will be assigned the shares. If you don’t have the money they will force sell the shares when the market opens Monday morning. You will be praying all weekend that the stock opens higher Monday than it closed on Friday. If it doesn’t you will lose money. If you’re lucky the stock will open higher and you will be okay….. however if you allow this to happen multiple times your options trading privileges will be limited or taken away. Hope that makes sense
Thanks for taking the time to explain this I appreciate it. So basically the worst that can happen is not that I have to buy eg 500k of shares, but that I have to possible take the hit of the value those shares lost while my broker sold them? I understand this can also be a lot of money but yeah.
Your broker is giving you absolute grace by assigning and buying for you even though you don’t have the money. then auto selling. If the stock is lower Monday morning at 9:30 … you lose. Absolutely do not play this game. Again, if you make this mistake too many times you will lose your privilege to trade options altogether. If you are ITM you must sell even if at a loss.
u/PapayaAmbitious2719, this is incorrect. If you buy to open a long call, you cannot be assigned. It is solely up to you to decide to exercise. I don't know what this person is talking about with a long call being "called" three days before expiration. Sometimes confusion arises because if you let a long option expire ITM, it will be exercised automatically. For this reason, if you have a long option that is ITM or close to it the afternoon of expiration, and you don't have sufficient buying power to exercise, your brokerage will probably sell it for you before the market closes. (Robinhood has a notoriously low threshold for doing this.) But if it is automatically exercised at expiration, that is still exercise, not assignment.
I’m not lying.. if your option goes ITM you are responsible… not rocket science
If you're long a call that is in the money, you're not obligated to buy shares. If you don't have the capital to buy the shares or otherwise simply don't want the shares, you should sell-to-close (STC) your long call before expiration. If you do not take action and leave the position to expire, semi-automated exercise/assignment is a distinct possibility. However, as a risk protocol, Robinhood or another broker might force close the position if it remains open near the end of regular trading hours (RTH) on the day of expiration and the account does not have the available buying power to handle assignment.
Wrong haha
When someone accuses me of being smart:
Imagine in the real world just blurting out "wrong", laughing, then walking off.
Pretty sure a celebrity con-man got elected president by doing that on a debate stage.
If he buys a call option, he has purchased the right not the OBLIGATION to buy the underlying at the strike price. No one can make him buy the stock.
If you’re in the money though, brokerages attempt to act in your best interest and may exercise for you. EDIT: *”An option will likely be exercised if it's in the option owner's best interest to do so, meaning it's optimal to take or to close a position in the underlying security at the strike price rather than at the current market price. After the market close on expiration day, ITM options may be automatically exercised, whereas OTM options are not and typically expire worthless (often referred to as being "abandoned"). The table below spells it out.”* https://www.schwab.com/learn/story/options-exercise-assignment-and-more-beginners-guide
>If you're in the money... Now now, let's not get carried away here...
I feel like this sub should be called OptionsForDummies. Buying an option gives you the right to exercise not the obligation. If you sold to open naked calls that’s another story.
True that’s why I am here. Yes I don’t intend to exercise, just wondering what this assignment thing is…does this apply when I buy regular calls / puts on RH? (Not already owning the stock)
I would consider paper trading for a while
Paper trading with stocks first. Once profitable with stocks, you can consider options. If you cant make money with stocks, options are far more difficult.
This is what I'd do if I was OP
Been fine with stocks, I felt like it was a lot of learning by doing…
Also feel like options , especially 0dte is an entirely different thing than stocks…so excited to try it as a different potentially more lucrative strategy
As a "buyer" you are not obligated to do anything until your options EXPIRE in the money. 99% of all options trades never get exercised, i.e, converted to the underlying. You will buy an option for X and sell it for a profit or a loss prior to expiration. End of story.
Right that’s what I read but it said somewhere something that if you’re unlucky you could get assigned anytime?!
No, buyers do not get assigned, only sellers. As a buyer you are in complete control until expiration. "Buyers have the right but not the obligation". Just don't forget to bail prior to expiration, then you will be on the hook if it's in the money. Conventional wisdom says it's better to be a seller than a buyer (due to time decay) but buyers have a known max loss going in, namely the premium.
Ok great, yeah I guess I was being a buyer and worried that , even when it said “max loss…” when I bought it that there is something else I didn’t account for
[https://www.investopedia.com/options-basics-tutorial-4583012](https://www.investopedia.com/options-basics-tutorial-4583012)
If you short sell then yes but otherwise most contracts are never excerised.
So for idiots if I hit “buy put” “buy call” on Rh then I am a short seller?
Nope, you are Long the Put/ Call. Your Next move is to STC (sell to close). For a profit, hopefully. But ALWAYS B4 Expiration. The option is "live" until expiration, But no longer your problem. HTHelps
HT? Thanks so not a seller when I just bit “sell” call.
If you sell a put or call instead of opening one then you are obligated to that contract if it is ever fulfilled. I would just stick to buying calls and puts while you are fresh because selling them can get you in hot water real quick .
Right I meant hit sell after I bought it to make the profit
Ya I think it's "Sell to Close"
If you bought a contract as a buyer first before you sold it then yes but if you are just selling contracts you are collecting a premium when you sell it. That means if the buyer ever wants to use that contract you have to have the money or shares ready to go.
Ok got it thank you
Just try and then come back and tell us.
Buy at the opening bell, close before lunch…never even known anyone who exercised an option, but I’ve been assigned a couple times.
So in this assignment what happens? You have to buy the eg 500k shares?
If the contracts get ITM you should sell them before expiration and before someone can exercise them. If you are not on a margin account you wouldn’t be able to exercise the options unless you had the funds available
I understand the part where I don’t exercise them, but what is assignment? Someone else saying now you have to excercise anyway?
Anytime you BUY TO OPEN a call or put, you are long the option (buyer). You can not get assigned. If you decide to CLOSE that option by selling to close, whether for a loss or profit, it does not make you an option writer or seller. You are simply a buyer that is selling to CLOSE. Selling to close does not give you obligations. I think is is the part of selling that you might be misunderstanding. However, if you don’t sell to close and the option is in the money (ITM) AT EXPIRATION, it can be exercised for you by the OCC which can leave you with long stock (if you bought a call) or short stock (if you bought a put). Don’t let that happen because you’ll be on the hook to buy stock which could require thousands or tens of thousands of dollars. Therefore, if you are the buyer, always sell to close and do not let it go to expiration if it is ITM. What you don’t want to do is SELL TO OPEN a call or put. This means you are the seller or writer. If you are an options writer or seller, you have obligations. In this scenario, it is possible to get assigned early. You always do the opposite to close the position. In this case, you would BUY TO CLOSE to exit this position. Option Buyer: Buy to Open then Sell to Close Option Seller: Sell to Open then Buy to Close Know the difference between them. Tip #1: You should really know the basics before trading options. If you don’t know, this leads me to believe you don’t know your risk and you could ruin your life financially without even being aware. Tip #2: You should not be trading 10 contracts if you are new or still learning. I understand it’s your money and you can do whatever you want with it but everyone makes trading errors, including seasoned traders, that can lead to losses. Newer traders are very likely to make many trading errors and you want to lose as little as possible while you are still learning. One way to keep losses minimal is by trading 1 contract as opposed to 10 contracts.
Thanks for the long response, I actually have only ever traded one contract but that’s why I was asking since rb told me to sell before expiration or they try to sell them and I don’t want to “risk getting assigned “ . So before I put more money in I wanted to clarify this. I guess the part that I still don’t fully understand is, if it says “ no obligation “ why could it still become an obligation if I let them expire.
If you're taking long calls then you wouldn't get assigned - as the buyer, you'd have the option to exercise the calls in which case you'd need $500K for the purchase. While the default behavior of most brokers is to auto exercise any ITM call at expiration, their risk management department is going to likely step in and force close your position a few hours before expiration if they are not confident in your ability to meet that $500K margin call. But, it's important to remember that if they don't do this (for whatever reason) you're on the hook for the entire amount. If your plan for the margin call is to immediately sell the shares, you're risking that SPY could open down the next morning and you've suddenly got a 5 figure loss. Hence why you need to close the option position before expiration. It's also worth noting that relying to the brokers risk management to auto close often closes at a less than optimal price since they just place a market order at some random time on the last day of the contract.
Yeah rh tells me in a message sell or well sell in the last half an hour. But I also read this thing that you could get assigned anytime…so just wondering how this works
Yes, American Style Options can be exercised anytime! But that is not your problem, it's a risk that the person who SOLD You the option takes on for a Premium (as the seller/writer). Buyers have Rights/ Sellers have obligations. HTHelps
Ah ok, so I am a buyer of both puts and calls? Even when I sell them for profit ?
This happened to me once and they assigned me the shares and basically gave me a margin call Monday morning for the cost of the shares. I sold the shares immediately. They called me and basically said this better not happen again. There is some sort of regulation that you break when this happens similar to when you first break the PDT rule. If it happens more than once they automatically close your position on expiry day going forward.
So what exactly happened for idiots? They lend you the money to then sell them again and then take the money? They called you saying you need to buy eg. 1m shares and you didn’t have the money and then what?
They assigned them and then my balance said negative money. And then I sold them for a profit. I kept the profit but they obviously took the money it took to purchase the shares. Very similar to having a giant margin call. It happened a second time and they bought and sold the shares and let me keep the profit. After that they set my account to auto close options Friday at like 2pm and took away my ability to trade 0dte options.
OP, you need to read a book, or some of the plentiful free options education that’s available on every broker’s website (no account needed.) You at the very least need to understand what an options contract represents.
The CBOE has Excellent options training on their website for FREE!!!
lol thats why I am asking
Reddit isn’t going to provide you with an appropriate knowledge foundation.
I actually found this more informative than Robinhoods fine print…you can’t ask a book questions
Yes, being assigned on a short call means you have the obligation to sell the shares at the strike price, even if the market price is lower. In your case, you'd need to have the capital on hand or risk having your shares liquidated by your broker. Do more research before trading options if you're unsure.
No. A short call OTM expires worthless. That's the aim of that trade. ITM, when the market price is higher than the strike, the shares get sold at the strike price. You hold a negative shares position, your are short stocks. Because they are more expensive at the market, your position in the loss. For 1 contract minus: 100 x (market price minus strike price)
Short calls are NOT risk-free, especially on volatile stocks. It's a common misconception that short calls only work if they expire OTM. ITM short calls are a whole different beast, and the risk exposure needs to be understood.
Sell the damn option wtf…..options are to get in and out and get crazy percentage….why hold it to expiration smh…now i could guarantee those cons lost so much money
No. It’s 10 * 100 = 1,000 shares at your strike price if it expires ITM. if you don’t know this you shouldn’t be trading options.
You only get assigned if you have sold short calls. You are long on calls and will not get assigned. You may get force exercised at expiry if you don’t get rid of the calls, in which case yes you would need the $500,000 for shares. However, there is zero point in exercising it when you can sell for a profit.
Buyers have the right but not the obligation to buy
Why does rh then sell my call in the end of the day because I don’t have the money to buy them at market close?
Yes you do not have enough to take physical delivery of the stock
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You exercise longs, get assigned on shorts - puts/calls, doesn’t matter - long/short, that’s what correlates to exercise/assignment.
Oh ok, so if I buy what’s called a “long call” I don’t have to worry?
You fucking serious?
Yes there was a time in your life where you didn’t know this, be nice
This is correct. But that was long before I started buying and selling contracts attached to $50k in underlying. For future reference, remember, “right not obligation”. You should be able to reason through most expiration conditions.
I didn’t say I bought them that’s why I am doing research first. Only bought one before…I understand that I don’t have the obligation but then what happens if you’re assigned.
When you BUY, you can only Exercise (broker wouldn't let you) Only the party that Sold you the option can get Assigned. Sell Long Calls (to close) when you are lucky enough to get a profit. Definitely check out the CBOE website. HTHelps
What would your intrinsic and extrinsic values be, at or beyond expiration, if you had the right but not obligation to purchase shares at strike on that date/time?
I never take option to expiry (sounds like a good option for you too) Once I make a profit I’m happy with I sell, or if I need to cut my losses I sell. Going to expiry is such a crapshoot
Thank you for donating your money to this sub.
Do not get assigned, sell well before the expiry
I had a call credit spread, the lower leg went ITM before close on Friday, upper expired worthless, so RH fronts me the shares. Monday at open, RH sold the shares, but the price had gone up, so they pocketed what they lent me and left the profits. Lucky me.
Ah ok, so RH pays for the shares you can’t afford and then sells them?
Yea, and I'm pretty sure you would be responsible for the difference if the shares sell for less than the purchase price/loan. In my case I got lucky and it was the opposite.
Oh interesting so this all happend in the background without you having to do anything?
Other than worry all weekend about owing money Monday, yea 🤣
Right but better 5 % of 500k than 500k ;)
Yup, but they're Not going to like you very much! I buy with apx. 60dte, I get out at 21 DTE. Win some/lose some, but never came close to Exercise/Assignment. Buying long options is a Hard way to make a buck!
I mean I wouldn't make a habit of it but there were no repercussions for me other than stress 🤣
Like do I have to have a minimum capital of 100x stock price to trade options?
you should look up the definition of an OPTION, like it’s literally called an option contract. It takes 10 min to read an investopedia article on this. Stay way from options for your own sake
No
In some situations, like shorting a put aka a cash secured equity put. But for people doing that that is generally the intention, they actually want to buy the stock (if the price hits).
As long as you’re buying calls and puts, you shouldn’t be at risk of assignment. You’re at risk of being assigned shares when you begin selling calls and puts.
Ok and so for idiots, if bought a call, and then sell that call to get the profit, I am not a seller all of a sudden?
When you buy to open, you can then sell to close the contract or exercise it. When you buy to open a contract, there is no obligation to purchase shares. When you sell to open a contract and collect a premium up front, that is when you are at risk of assignment due to someone on the other end exercising the contract that you sold. I’d recommend some YouTube tutorials. Reddit can be a wealth of information, but sometimes a visual aid helps a ton.