The following AAPL trade is intentionally modified to have a very good risk/reward ratio due to the low risk. Plase, don't try to replicate since it is not real.
As Steve from the Optionstrat YouTube channel explains here, the early assignment of one or several options (put or call) does not change the P&L at all if we handle the situation correctly. That is, if we are assigned -100 shares of a stock while the rest of our options in our trad structure are still active, we only need to buy back those -100 short shares and re-sell the call at the same strike and current price, and our P&L will not be affected. Similar way with short put assignment.
https://www.youtube.com/watch?v=aiptFT9vmF4
The issue is, if in the example trade, AAPL moves up or down significantly and the options lose their time value, we could be assigned, in the worst-case scenario, 20 contracts, at 100 shares each and $195 per share, totaling almost $400,000 (in short shares for calls, or cash for puts). If we have an excess liquidity of about $100,000, this would trigger a margin call. Actually it can happend in the $240 SPOT zone, and I am actually in profits, but:
Could the process be as simple as:
- The buyer exercising the option triggers a margin call, and on the SAME MOMENT,
- We immediately close the position (buy back the -2000 shorts in the case of assigned short calls, or sell the +2000 shares in case of assigned puts), and sell back the put or call at the current price.
- Nothing happened and everything returns to normal
Or would there be any additional problem due to exceeding the broker's margin requirements?
Theoretically, the rest of the legs of my structure protect me, and it's true that the P&L is not affected, but I'm worried if the excess margin required could pose a problem for my portfolio.
Does anyone have experience with this?
Thanks
Assignment in a Low Risk Trade
byu/Defiant_Deer_7076 inoptions
Posted by Defiant_Deer_7076