Hey 5-Star Trader,
One of the reasons I fell in love with options was because, unlike stocks, you can use leverage and risk less money for a larger payout. However, when buying options there is always a chance you will be assigned.
While this rarely happens to me, I was recently assigned Campbell’s Soup (CPB) and I wanted to show you how I handled it.
What is an assignment?
An assignment happens when a buyer decides they want to exercise their right to buy a stock. When this happens sellers are chosen at random to fulfill that obligation.
On June 8 I sold six iron condors in CPB ─ SELL -6 IRON CONDOR CPB 100 (Weeklys) 11 JUN 21 49/51/49/47 CALL/PUT @1.35 limit order (LMT). Initially, my intention was to make this an earnings overnight trade.
The next day at the open I realized I had been assigned. While of course I’d rather not be assigned, getting assigned early on into the contract is preferred.
What I was left with was -6 short calls at $49, the +6 long calls at $51, and +6 long puts at $47 along with 600 shares of stock that were assigned at $49 and were then trading for $46.
From here I had two choices. I could either sell my shares or exercise my put.
Now my shares were trading for 46.22 and my puts were at 47. For those rates, it didn’t make sense to sell the shares for 46.22 when I can sell them at 47.
The difference between the price of the puts and the CPB current price was $0.01 with no exercise fee. So I exercised and closed out the long shares for basically the exact same price as it would have been if I sold my shares.
Sometimes it’s better to just sell the shares and sometimes it’s better to exercise the other leg of the strategy, but you have to pay attention to both options and decide depending on where the market is trading. In fact, you can actually get out for an even better price by legging out this way, just depending on what the stock is doing. But however you choose to handle your assignment, I highly recommend using the live support function in your brokerage platform because they can look at your account and see exactly how many dollars you get depending on the varying options. Knowing those details is key when making a final decision for an assigned option.
Interested in trading alongside me? Join me for my Quarterly Profits live-trading. We will be trading a wide range of “run into earnings” reports.