Early Options Assignment Risk (When to Worry & When to Chill)

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Being assigned on a short option that is in-the-money is a common fear among options traders, particularly beginners.
When an option buyer exercises their option, they buy/sell shares of stock at the option's strike price.
There are two sides to every trade, and if someone owns an option, that means another trader is "short" that option.
Traders who are short options are obligated to take the opposing share position as the traders who exercise their options. As a short option trader, the obligation to take the opposing share position as the option exerciser is referred to as being "assigned."
But fear not! Assignment is very rare when trading options, as very few options are exercised by the option buyers.
In this video, I explain:
1) What is meant by "early assignment" in the context of trading options?
2) Does being assigned on a short option increase your risk?
3) Should you worry when you're short an option that becomes in-the-money?
4) How to assess the probability of early assignment risk (extrinsic value vs. the likelihood of an option being exercised).
5) Why a short in-the-money call option has a high probability of being exercised before a stock's ex-dividend date.
After this video, you should feel a lot more comfortable when you have short options that are in-the-money.
Be sure to leave a comment down below with any questions you may have!
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[@dheerajchidambaranathan]

I have watched a lot of videos related to assignment risks and even Tastytrade's own stuff but none made so much sense as you. Thank you Chris for making options trading so much more understandable and enjoyable. Someday soon I plan to make this my full time job thanks to you. :)

[@hunterpolvi4470]

Seriously this was the best explanation of this concept I’ve ever seen. Fantastic work.

[@projectfinance]

Thank you, Hunter!

[@chrisguli2865]

Hi Chris most traders don't sell naked calls - usually part of a spread - either a credit, debit or calendar type spread so there is defined risk - however traders have to avoid getting stuck between the strikes of the long and short options in a credit spread. Debit spreads are safer since the long strike is ITM first the short position is covered by a long call or put. However with a credit spread the short call or put is ITM first so if the long call is OTM the loss will be the difference since you have to exercise the long call or put if there is not enough cash in the account. I was once assigned on a short SPY put that was $9 ITM the close before expiration day (Friday AM). But I was backed up by a long SPY put that was $8 ITM so my loss was $1 or $100. I exercised the long put to offset the short put to cancel out the the 100 shares of SPY assigned to me. Took about an hour after opening (10:30am Friday) to settle and my account returned to normal positive balance. The interesting thing about exercise/assignment is that the first trader to exercise an option will start a chain reaction of assignment-exercise throughout many of the holders of short options in the options chain...many of these traders would not normally have exercised their long options but were forced to to offset the short positions (unless they have enough cash or stock in the account already). Key takeaways - don't hold ITM (or close to ITM) options to expiration day or the day before to avoid this. And yes avoid ex dividend days too. Be aware of after hours trading on some equities too if the price is close to the short strikes, especially on expiration day (usually Fridays). You don't want to get stuck with sneaky after hours movement going OTM to ITM after hours then you don't have the back up of the expired long option....you pointed this out in another video.

[@Xektt]

Newby question: Can assignment happen during trading hours? i.e.: I sold a put/call, I am short, and then suddenly that short position just disappears from my portfolio during the trading day because I was assigned? Or does assignment only ever happen after trading hours?

[@johngutierrez2042]

Man, you explain things so clearly and easily. Your video series is pretty awesome. Keep doing exactly what you do.

[@projectfinance]

Thank you, John! I appreciate the comment.

[@sunilpai]

I have learnt a lot from your videos. Keep up the good work

[@rosanadelgado9528]

Thanks for the video content! Apologies for butting in, I would appreciate your initial thoughts. Have you thought about - Panuhammad Foremost Principality (Have a quick look on google can't remember the place now)? It is a good exclusive product for dominating options trading without the hard work. Ive heard some amazing things about it and my m8 at very last got great success with it.

[@Eastbaypisces]

@@projectfinance my q is who decides that the option gets assigned tho?? i thought that the brokerage does it or does the buyer do it if im the seller?

[@projectfinance]

@@Eastbaypisces It's through a lottery-like process run by the OCC. The option buyer is the one who decides whether or not to exercise the option. But if there are 1,000 open option contract and an owner exercises 1x call, how do you decide which option gets assigned? It goes through the OCC in a randomized process and is then returned to the brokerage. www.optionseducation.org/referencelibrary/faq/options-assignment

[@scottabergermd]

Maybe the most important video on understanding assignment I’ve ever seen. A MUST for any options trader.Thank you!!!

[@WBIGTVBuffalo]

Scott. I noticed your kick-ass trading playlists. Subscribed!

[@scottabergermd]

@@WBIGTVBuffalo Haha. Not sure why the poison??? I was serious in my comment, and really like his options videos. Guy has taught me a lot. You need a HUG?😆😂😜

[@WBIGTVBuffalo]

@@scottabergermd Now I do. I meant it. I'm studying TOS and options. You have a great play list.

[@scottabergermd]

@@WBIGTVBuffalo so sorry, these days, tough to know who your peeps are and who is poised off at something…I really write from the heart, and thank you for the subscribe…I was not even away my playlists were public and viewable, but will keep adding to them if they are helping you. It helps me too. Peace.

[@jamesecutler5230]

Thank you so much for explaining that. This is the first video that mentioned dividends. I just hit that follow button!

[@ohsumactiontv9110]

Bro , thank you for sharing this valuable information. Being a newbie and watchinf few youtube channel scaring traders by instilling this fear of assignement ,held me back from exploring spreads and shorts . Especially about extrinsic value. This makes the understanding much better and encourages. Appreciate it.

[@projectfinance]

Thanks and welcome! I’m glad you liked the video

[@warplanner8852]

Thanks for the lesson. All the terms and examples notwithstanding, NEVER WRITE AN OPTION CONTRACT UNLESS YOU ARE PREPARED TO LOSE THE UNDERLYING STOCK OR SPEND THE MONEY TO BUY THE UNDERLYING STOCK IF YOU NEED TO.

[@neuvocastezero1838]

When a long butterfly is purchased, if the short wings that limit your risk and limit your profit go ITM, is there a possibility those being assigned before the buyer cashes out, thereby ruining the overall structure of the trade?

[@victoralvarez5876]

QUESTION. Wait so by selling an option and having it exercised you basically only pay the difference between the strike price and currently market value? As per your example @5:58 you wouldn't be responsible for the entire 100 shares at $215 or $21,500? Are the buyers who exercise it just buying from the market and you, in essence, cover the change/difference between prices?

[@vincentkhoo7088]

may i know will i still get early assignment if i buy vertical spread and it went ITM and is it possible to hedge my short option with my long call or put, or i still nid to buy the shares?

[@TheBeardedMerchant]

I’ve been assigned twice on my put debit spreads in the last week. With Robinhood, it’s more likely due to the amount of inexperienced traders. I love being assigned because it’s profit.

[@projectfinance]

I’m glad you get it! For anyone reading this - if you get assigned On a short option with lots of extrinsic value then it’s actually a good thing because that extrinsic value goes to zero and is profit in your pocket.

[@randyhibshman3682]

I just had my first early assignment, and it was a put! The put was part of a losing Iron Condor that I was holding just for the chance of a Hail Mary recovery. At the time of assignment the put’s price spread was $0.01-0.03. As best I can figure, the put was either exercised by someone acting irrationally, or an algorithm that found a fleeting arbitrage opportunity. ? The early assignment is largely inconsequential for me - I have the stock buying power to purchase the shares without triggering a margin call - except for robbing me of a chance for a Hail Mary recovery after I close everything out on next open.

[@singaporesling4961]

Hi Chris - Great explanation of Extrinsic value - thanks for including your own experience for how many times it has happen over set time and why - to get an understanding the level of the risk - and thanks for mention the level to watch out for - good job.

[@ShihabPersonalFinance]

why would a put get assigned early? if no extrinsic value in the option as well?

[@richard24690]

Did you ever get assigned a put early without extrinsic value?

[@ShihabPersonalFinance]

@@richard24690 yes many times, usually in the last week of expiry

[@rockets0296]

When you get assigned the Options Clearing Commission (OCC) automatically gives the buyer 100 shares and then randomly assigns a broker who then randomly assigns someone. You owe the broker the 100 shares at the contract price. Exercised 100 Shares @ 175 = Owe -17,500, you buy 100 shares @ 215 = 21,500. You immediately sell the 100 shares you owe @ 215. You lose 17,500 - 21,500 + 500 = -3500

[@STORIEDAMAAN]

So there's no risk of early assignment for people who only BUY calls/puts. And has no intent to exercise it.

[@Nakameguro97]

If the initial trade is set up correctly, usually, the biggest headache in assignment is the extra capital requirements. For one or two positions, this is manageable, but for a portfolio of complex options positions, it can become difficult. Do you have any suggestions for the latter, besides early liquidation?

[@guitarpassion1]

Super, thank you.👍👍 My question is, why do traders buy call options if the chance to exercise them is very low?

[@MrLaspdi]

I believe it's because their plan is to sell the option later for more money making a bigger difference that the one they would do if they just buy and sell the stock

[@narutouchiha5464]

You don’t only have to exercise. You can sell back to market for money

[@chalemi]

1-OK so if I understand assignment correctly, you cannot be assigned with BUYING a call spread, or BUYING a put spread? Assignments are only possible with SELLING spreads? 2- So if I'm assigned on a credit spread, can I simply reverse the trade and be out of the position completely? In essence nullifying the trade and the assignment?

[@mahendrarathore4833]

As always, such a delightful presentations by Chris. Great video. I wish you you could further give alternatives scenarios after being assigned on Short options and how-to strategies and turn the scenario in call sellers.

[@roladun]

Thanks. I get a question regarding assignment, if I am scalping an option, buying a call and selling it at higher price, who is responsible if such call is exercise... the last seller or the initial person who sold the call?

[@lephuong-ou4wh]

your this video made me much clear and confident for assignments .. May Allah bless you

[@3047527]

Ok. So as a long call option holder and dividend is coming up next week. I will not have to worry about risk of my long calls being automatically exercised by my broker?

[@PokerDummyface1024]

Excuse me. I was assigned my short put options at my break even price? Not my strike price. Why is that? Can I tell the broker to fix that?

[@mahendrarathore4833]

Thank you, Chris. Excellent video with great content in the right context. You are indeed, a gifted professional with deep expertise. Your delivery and the way you explain concepts is marvellous that anyone can easily understand. Thanks again for great work!! Mike

[@aw1078]

Have you done a video on reestablishing your assigned option by selling the shares and putting the option back on? Just wondering because I heard you can do this and wondering what are the things to keep in mind. Thanks.

[@vbmbs]

Would have been more helpful if you discuss how to handle the shares after assignment. Yet, in general you do a great job explaining a complicated scenario.

[@mistletoe91]

Can i ask you a question. I could not find anywhere answer for. How does assignment work on SPX since they are cash-settled. So if i sell a $3450 PUT/ Buy $3400 CALL and price goes to $3410 then my loss at expiration is $4000 ? As SPX has no shares traded so they will just deduct the money from my account ? Thanks

[@justinjones1384]

Is there still a chance you can be assigned if your short and long option is OTM by expiration?

[@satheeshreddy4050]

I wanted to trade in E-Mini S&P 500 options which is in CME exchange , But it is American style. I m having a fear of exercise option any time rule. If the option is traded in Out of the money(OTM) then is there any chance of assignment?

[@keevang4520]

If I sell a put, then who is the other trader? The other trader buy put and paid me a premium? Or was it the buy call that paid me the premium?

[@sunnysgadgetreviews5886]

How do they close in the money covered calls? Call value will be in negative but stock value will be in profit. Let's say call shows -$500 and stock gain is $500. Do they close them separately or somehow average it? If separate, I will end up paying tax on the gain so will be a loss overall as loss is after tax right? I sold some covered calls and stock went up.

[@projectfinance]

Calculate the profit/loss on the stock (assuming profit) if selling the shares at the call's strike. Then calculate the loss on the call. What's the net result? That's the capital gain of the trade. You only pay taxes at year end if you're net profitable. If you have an ITM covered call you can let the call expire and the entire trade will unwind on its own since the short call assignment sells your shares. An alternative is to buy back the short call for a loss and continue holding the shares.

[@nickhumbolt8855]

My man Chris here don’t know how grateful my blood pressure is for his explanations on understanding options 🙏😂

[@josephjones836]

Lol

[@ms8172]

Very good explanation Chris. Thank you!

[@kpn5000]

as long as the strike on the short calls you sold is above your average cost per share, who cares? you keep the premium and then profit on the difference between your cost and the (higher) call strike, right?

[@ValveInteractive]

Still the unanswered question that I need to know is, do you get assigned as soon as it dips below your strike price at any time during the period? Or do you have the chance of it rising again before the expiration date? In other words, are you usually screwed as soon as it goes below?

[@projectfinance]

No, you don't get assigned when it hits the strike price. You get assigned if someone who owns the option exercises it and your short option is selected to be assigned via a lottery system. Nobody will exercise the option unless it has close to zero extrinsic value, which happens if a) the option is SUPER deep in-the-money and/or b) the option is in-the-money with little time to expiration.

[@luckeblack9139]

Yesterday I sold my first call credit spread and in the morning I freak out what happen, I was assigned!!! Now I need to came up with plan how to get rid of short 100 shares.

[@arupian666]

LOL... options aren't for you...

[@topcat2919]

Dude the Pulp Fiction scene on the wall is Awesome

[@projectfinance]

Thank you sir

[@franklynmota4253]

I have a question. Say I buy a Nio debit spread. I buy at the range of 50-55.50 with the exoneration date being March 12. You think I have a chance of being assigned?

[@justinwinkler477]

How often does someone actually buy the shares at the strike price? When I buy a call I usually hope for the run up and sell for a profit (hopefully). I never buy a call with the intention to purchase 100 shares of it.

[@nkmasco]

Hi Chris.. thank you for the video. Is the scenario same if the trader is short the put option that is deep ITM ? The option still have about 5 dollar of extrinsic value left with 24 days to expiration

[@juanpedroza4458]

So, i have a short call in xray, the 47.5 which i recieved 1.93 in premium and I'm positive, $88 with 23dte and stock price is 42.98. They are going exdividends tomorrow but it seems I dont have to worry, right

[@saulfarber]

this was super helpful, thank you. helps alleviate fears

[@tmektmek]

@projectoption Great video. What about if you're selling covered calls on a stock that you've gotten considerable gains on (e.g. +700% gains on your TSLA shares). My concern is that if assigned that would result in sale of the shares and a 15% to 35% capital gains tax hit on those large gains. Is this a situation where you would recommend against selling covered calls because of this risk?

[@Raj-tz5dx]

Thank you for information. I have question about option assignment. I sold naked put option GME stock at strike price $300 and stocks close $328. but the after hour GME stock it drop to $294 and bounce back to $325. That means I may get assigned. Please advise I scare about GME option. I thought after hour drop I wont's get assigned

[@stockmarket-wt1wb]

If I am assigned shares on a Put/credit spread and dont have the money in my account, will my account go into the negative if I dont have the funds? And can I hold onto those 100 shares until the price goes up??

[@skydragon3857]

if i sold call option on ex-div day itself and it got assigned, wouldn't it be me who gets the div because it was already ex-div day? or is ex-div the last day i still have to own the stocks?

[@dtrio3996]

Can u only get assigned if you WROTE the option??

[@projectfinance]

Yes!

[@paulpham7441]

So what happens if I a sell (put or call) and I get early assignment but I don't have any of those shares ? Do I have to own the stocks?

[@bccsivxx-xxivvii]

So if that 3500 is considered a loss, do they report that as a loss on the 1099 at the end of the year, or deduct it from the gains?

[@blujay9030]

What is the call option you are selling is still a month or two out when dividend is being paid? Are those also still at risk for being a assigned?

[@Justinkredible_007]

If I’m taking a bullish stance on Stock XYZ and sell a cash covered put ITM leap can this be assigned early?

[@hilhil1811]

Thankyou so much for explaining assignment in such an undertstanble manner. As a short seller getting caught in a squeeze into expiry I was panicking.

[@diverdown81]

Awesome content. As always. This is a topic that I don't see many talk about. I still owe you those sours....and now I am up 17k thanks to you and 1-2 other KZbin channels.

[@projectfinance]

Thank you and great job! What strategies are you trading?

[@rahsta106]

Yes, what strategy are you using? Thanks

[@diverdown81]

@@projectfinance I have just been selling credit/put spreads. Mostly against SHOP, ROKU, and the SPX when the VIX has been low. Granted, I lost 10k against AMZN and SPX when the VIX spiked, but I learned from it

[@projectfinance]

@@diverdown81 Got it! Keep it up and try to iron out a plan around those strategies. As long as you are learning from the losses, that's progress!

[@vintag3326]

@@diverdown81 can you help me with my trading?

[@Raj-tz5dx]

Thank you for information. I did weekly option today expired. i did today. I have question about option assignment. I sold naked put option GME stock at $300 and stocks close $328. but the after hour GME stock it drop to $294 and bounce back to $325. That means I may get assigned. Please advise I scare GME option. I thought after hour drop I wont's get assigned

[@mcgragor1]

Wait...I'm new, but is this naked calls? Covered calls you are assigned at the strike price and as long as you sold it above what you paid for the stock, you still make money, even though you could have made more had you not sold the call and held the stock. So are you saying in a naked call, since you don't own the stock already like a covered call, if you are assigned, you have to buy the stock at whatever price above the strike its at, then sell it for the strike price? Is that right, or am I even close ?..thanks.

[@jordanalba3903]

on that 3500 in losses for the short call in the scenario @5:03 will they have to pay taxes on $215 in gains instead of the $175 in gains?

[@luease1369]

if i buy 1 call of tsla and it goes up a little bit and i can't sell to close its already pas expiration i was asigned but i dont got the money to buy 100 shares of tsla what now?

[@jasonfleming2391]

so I guess the risk of getting assigned is low due to a dividend is low if the dividend is worth less than the option price?

[@evrythngfinance997]

Am I able to sell on the day of experation

[@treehouse157]

Wait does assignment happen only if you short options?

[@projectfinance]

Yep! You can't be assigned on an option you own since you are the one exercising it. If you exercise an option you own, a short trader on the other side gets assigned.

[@treehouse157]

@@projectfinance what about when you go to sell that option? Any risk there besides it exercising on the expiration date?

[@ewaldo1113]

Can you exercise a call option to drive your average share price down?

[@chris-pw6jt]

So does "assignment" not occur when an option expires, as opposed to being exercised?

[@projectfinance]

If you are short an option that is ITM and you hold it through expiration, you will be assigned. Any options that are ITM and held through expiration are automatically exercised, meaning those that own the option will effectively exercise the option, while those that are short the option will be assigned.

[@NirvanaMK]

So if puts go through expiration out of the money can we be assigned?

[@TycoonFactory]

Hey! I wonder if you can clarify something for me- I’m going round in circles trying to figure it out and come from a forex background so this is all new to me! I have a cash only account, hence I don’t use margin at all and pay for all of my trades from my balance. I did an options course which never mentioned anything aside from basic calls and puts (no shorting of these). I’m super confused by two main things: 1) tastytrade network advise that if you buy a call or a put you cannot be assigned - is this the case? 2) secondly if so, how is buying a put different to shorting in the scenario where I could get assigned? Thanks so much and keep doing a great job ♥️

[@enricosaccheggiani3192]

hi, Chris thanks for you interesting explanation.

[@thomassudderth767]

Holy s***. Finally somebody explained it well

[@projectfinance]

I'm glad this video got through!

[@aashishdesai5219]

Does early options Assignment Risk is there if we trade in Index or Indices?

[@projectfinance]

Not if you are trading a "cash-settled" index such as SPX, RUT, or VIX. These products do not have underlying shares and the options can never be exercised. Therefore, there's no risk of assignment when trading options on these products.

[@HazingNight]

I still dont really understand what to do if you get assigned on a short call. On a put i know, or at least i think, you just sell the shares but with a call you are negative shares. So what would you do

[@projectfinance]

Hi there! I just answered this question in my newest video. Check it out here: kzbin.info/www/bejne/ZoO7oHyslNaqpKc

[@ytak68]

Thank you Chris for such a clear explanation on a very important topic.

[@mayralaporte9248]

Axel Is assignment possible when you have a defined risk position i.e. long call vertical or short put vertical spread ? I have watched other video on bull and bear spreads but I'am still unclear about assignment in these trades.

[@projectfinance]

Hi Mayra! Yes, you can get assigned on the short option if you’re trading a defined risk spread. The same concepts in this video still apply. If you are trading a spread and the short option is in-the-money with little extrinsic value (close to no extrinsic value), you could be assigned on the option. If the short option of the spread is in-the-money and has lots of extrinsic value remaining, you shouldn’t worry about assignment as it’s highly unlikely. I hope this helps! Chris

[@mayralaporte9248]

@@projectfinance Thank you Chris. If the short strike is tested and there is little extrinsic value is the best move to close the spread or replace the short strike ?

[@projectfinance]

@@mayralaporte9248 I can't recommend specifically what to do as it's up to you. What I can say is that if your short strike is tested, the option's value will be mostly extrinsic since at-the-money / barely in-the-money options will consist mostly of extrinsic value, unless the option expires in a few days. Unless the extrinsic value is close to $0 (say, less than $0.25 - $0.50), assignment is unlikely (unless it's a short call and the stock is going ex-dividend soon).

[@SnackAttack77]

Does this apply to option traders who do not short and just buy option contracts normally?

[@projectfinance]

No because if you own the call you decide when/if it gets exercised

[@jesuscamejo4022]

Hello Chris, Is there anyway to close automatically a position once it is approaching to strike in order to try avoid assignment?. I mean some kind of stop loss?. If it there is any would it be advisable? Thanks!

[@projectfinance]

Not that I'm aware of. You'd need to know what the price of the option will be when it hits your short strike. Also, I mentioned in the video that an option that is barely in-the-money (or even pretty deep in-the-money) has a very low probability of being exercised. And, if it was exercised and had lots of extrinsic value, that would actually be a blessing for you. Again, if an option is barely in-the-money (the stock price has just surpassed the short strike) and the option has plenty of time before expiration (7+ days), the option's value will be mostly extrinsic, in which case you shouldn't worry about early assignment.

[@scottabergermd]

Hi Chris, in the end of the video you mentioned that if your Option’s extrinsic value is about $0.50-1.00, that you did I not have to worry about being assigned usually but doesn’t that depend on other variables, such as the relative ratio’s to Intrinsic v. Extrinsic, or what the actual dollar values are? I didn’t think it was based upon an absolute value of say 50 cents or a dollar? Just checking because some of mine are close to 50% int/ext. values relatively speaking of course. Thanks so much Chris.

[@projectfinance]

Yes, it's definitely relative! $0.50 extrinsic on a $100 option would not be much, but I wanted to give a very rough guideline. But even if we are looking at a $100 option with $2.00 of extrinsic, that's still a lot to give up by exercising the option. The only real time it would be wise to exercise an option with that much extrinsic is if you cannot sell the option at its intrinsic value, in which case exercising the option would guarantee you that intrinsic value (difference between stock price and strike price). The general concept: the closer extrinsic is to $0, the less likely it is to be exercised.

[@scottabergermd]

projectoption yes, and I verified that for myself today with my broker. I am trying to get some kind of a ‘formula’ if you will, to know when your risk goes up dramatically. One of the really subtle points that you eluded to here in this amazing video, is the when you sell a put vertical, you are not at the same risk, if you had sold a call vertical, because then, under that circumstance, your buyer of the call, would be able to (and have to) short the stock, then sell it back at the current price to achieve the profit, making selling call spreads, in my opinion (and I an a relative newbie) - more likely to be early assigned, then put spreads. Is that your understanding too, and is there any kind of formula, even like a ratio of intrinsic to extrinsic values, but the extrinsic had several other variables as well....THIS IS SO FASCINATING!!! It has opened up a new world for me and my son, thank you so much.

[@japheth1100]

What if you are Trading Butterfly debit? Can you get assigned?

[@muazz2019]

Very clear my dear

[@projectfinance]

Thank you so much 🙂

[@dianac3395]

Hi Chris, do you have a group chat where you will share more live position of option ideas? Thanks

[@francescodimaggiomerlina2688]

Sir, your explanations are superb!!!

[@chrislow123]

Brilliant explanation and so easy to understand 👍🏻

[@thisnameisnotfake517]

So if you sell an option you own (not short) then you can not get assigned?

[@projectfinance]

Correct because you wouldn't have any position. You would be closing your option. Also, you can't get assigned on an option you own because to get assigned you have to be short. If you own an option it's up to you to decide if you want to exercise the option, in which case somebody else who is short your option would get assigned.

[@utslim]

Hi......do I run the risk of being assigned in a bull debit spread setup? Since part of the spread setup is the sell of a call, can I be assigned prior to the expiration date? I'm somewhat new at trading options. Thanks.

[@xkiller804]

If your stocks price expires above your sell call then yea you will be assigned. But since you have a bull debit spread you actually may want that. Because if your assigned on the highend the you are guaranteed the difference in the strike prices as profit. For example lets say you have a $110/$111 bull debit spread and the stock ends at $112. You will make $100 guaranteed as thats the strike price difference x 100

[@pawewilczek948]

The video content is so excellent, congratulations

[@projectfinance]

Thank you so much for the feedback! I'm glad you think the videos are done well.

[@monjurkarim9661]

Great tutorial. I sold 1 contract of FB put expiry 19th June and keen to buy 100 shares at strike price if assigned. My question is if the stock price go much below the strike price before expiry date, will i loose more money? Or I will just buy 100 shares at strike price. Pls.

[@tessa1158]

You will lose money because you bought them at srike price and now they are trading lower than when you bought them. Let's say your strike price is 150. You will buy 100 shares for 150. If Facebook goes to 145, you lose 500 dollars because now the price of Facebook is 145. That's why it is so risky to sell puts options because you can have unlimited loss. If the stock goes to zero you have to pay all that 149 x 100 shares. That's why you should not sell naked put options unless you want to buy the stocks at a lower price. Or it's always better to short with spreads that way your short leg will protect you from any loss.

[@tessa1158]

Also it is risky to sell naked calls without owning the stocks because you can have unlimited loss had the stock goes way higher. You pay the difference of the strike price plus up to whatever the price is currently trading. Let's say you sold strike price of 150 and it goes to 180, you pay 30 x 100. It's better to sell covered calls that way they will just buy your shares at strike price. Don't go into any trade without fully understanding it.

[@kavid8120]

I still don’t understand !!!! I pause and rewind so much but still have a hard time comprehending it !!!! I’m terrified of even buying a call option now or selling one !!! Idk what to do 😭😭

[@nevinkuser9892]

Great explanation. Thank you.

[@deepakjoshi1981]

Great and best explanation!

[@projectfinance]

Thank you

[@mosama22]

Really, this is a BEAUTIFUL video! Thanks a million man :-)

[@projectfinance]

Thank you for watching! I am glad it helped.

[@anad44]

I do almost all my trading in an IRA so I don’t have to worry about short or long CG tax. Every stock I have is for sale. Or I have $ to cover any contract I make.

[@tehachapiusa]

Chris thanks your channel deserves more subscribers for sure

[@wildcard2884]

I don’t get this at all. If I sell a call, that means I might get assigned and I’ll have to buy 100 shares of that call for the seller? Wouldn’t that put me at a huge loss if I had to buy 100 shares of a big stock?

[@projectfinance]

If you short a call and you're assigned, you'll have to sell/short 100 shares of stock at the strike price. That would be a very large position if you were assigned on a short call on a high-priced stock. However, you would not be able to short a naked call on a high-priced stock unless you had tens of thousands of dollars in margin requirement. But getting assigned does not create a loss on its own. It just changes the structure of your position from an option to stock.

[@wildcard2884]

projectoption so if I get assigned and I don’t have the money to buy 100 shares of said stock, what happens then? Sorry I’m just learning about all of this this week

[@projectfinance]

@@wildcard2884 If we are talking about being assigned on a short call, you would not be buying 100 shares, you would be shorting 100 shares (a position of -100 shares). A short stock position has unlimited loss potential (in theory) because short stock positions lose money as the stock price goes up, and there's no limit to how much a stock's price can increase. Because of that, a short stock position requires a significant amount of money in margin to put on. But if we're talking about being assigned on a short put, you'd be buying 100 shares of stock at the put's strike if you were assigned. If you didn't have enough funds to buy 100 shares and you did actually get assigned, you'd end up buying a share position worth more than your account, and you'd have a large negative cash balance. You would have to sell the stock position immediately to alleviate the negative cash balance (since selling shares will convert into cash and therefore put you back into positive standing). But if you did not sell the stock position quickly, the brokerage firm you're with would close it for you.

[@wildcard2884]

projectoption I can’t get assigned if I didn’t write the contract right?

[@CG1441]

Thanks a lot

[@projectfinance]

You're welcome!

[@boydizza]

I do have a (2) very interesting questions (At least interesting to me). I have gotten into (PCMM) Trading or for those who are reading this that don't know what that means it is an abbreviation for (Poor Mans Covered Call). So far I am doing pretty decent collecting my Premiums on the (OTM) Sells and about (4-6) weeks out being able to (Sell) my (ITM) Bu/Call for minimal to no loss. I have yet to either have those trades Exercise either at the (Sell/Buy) or the (Call/Buy) automatically due to the Stock Price reaching the Strike price early. So far I have only purchased my (2 - Option Strategy) in tandem using one transaction. I thought that I may end up with a (Day Trade) being given to me because I bought a contract and sold a contract for the same stock on the same day. But I was not given one (can you tell explain WHY?) and if I was to have purchased the exact same 2-strategy Option but each (Option) in a separate transaction would I have been given a (Day Trade) because of the way I purchased them. Now for my 2nd question to this is if somehow one or the other is exercised early. For example my (OTM) Sell/Call actually rises and hits my strike price causing it to (Exercise - early) and because of this my (ITM) Buy/Call Option is forced to (Exercise) to allow me the actual (Stocks) to sell. Now my (OTM) Sell/Call was further out of my breakeven on my (ITM) Buy/Call so I am actually making a decent profit over all on this Trade Option but I am curious to know if it will count as a (Day Trade) because again it was (bought and Sold) one the same day even though when I purchased both of these together on the same day it did not. My apologies for the long comment but I wanted to make sure you had as much detail as possible.

[@owlbus14]

For your first question...it would only count as a day trade if you sold AND bought/bought AND sold on the SAME contract...I'm assuming since you are trading PCMM's that you bought ONE contract & sold ONE contract (they are 2 separate contracts with different strike prices & diff exp dates, etc.)

[@danyasmirnov6496]

so touching for an excellent video

[@joannahuc1318]

Excellent explanation, as always

[@projectfinance]

I appreciate it! Thanks for watching.

[@jiaminzhu406]

When the option is deep in the money, the bid-ask spread is huge and how do I determine the extrinsic value of the deep ITM option? Using bid? Using ask? Using mid? Using last?

[@projectfinance]

Use the mid-price. It should not have a massive bid/ask spread if you are trading liquid options / stocks with lots of trading activity (which typically have liquid/active options with tight bid/ask spreads).

[@jiaminzhu406]

@@projectfinance Wow. Thanks for the reply. Btw, if the call is deep in the money, does it make sense to look at the extrinsic value of the put option with the same strike? Do they theoretically have the same extrinsic value? if so, it might be a good estimation. I am not sure. I have heard something like put-call parity but I don't fully understand it.

[@projectfinance]

@@jiaminzhu406 Yes exactly, that works too. If you compare the extrinsic of an ITM call to the value of the same-strike put, the put's price will virtually be the same.

[@maxhewitt9032]

the sound is not good I am quite disappointed

[@MrLaspdi]

Thanks for the video!! Very important topic to fully understand the perspective of the options trading. Awesome.

[@davonbenson4361]

Can you be assigned more than once, as a seller?

[@projectfinance]

Nope. Once you are assigned you will no longer have the option, and therefore you won't be exposed to anything that happens to it.

[@davonbenson4361]

projectoption. Ok, thank you.

[@purepat4017]

High quality content