Hey guys, just wanted to know how option settlement or assignment works. I usually trade otm and suppose by 3 pm or 3.30 my option is 2-3 strikes otm ( spy = 560 and i sold 563 ce which trades at 2-3 cents at 3 pm, so will my option be squared off by broker to prevent settlement risk, or the chance of assignment is lower due to the strike otm.
Posted by TradingBulls07
1 Comment
If you are asking if an OTM position will be closed automatically by the your broker the answer is no. Your broker will not make a decision on how to handle that position for you.
OTM is OTM and there is no inventive for the option buyer to exercise the option they bought from you.
HOWEVER, you need to keep in mind that after market close if the pricing changes enough to put the option you sold ITM it could be exercises. That can and does happen, so it is a best practice to close out the position if there is any reasonably chance of that happening.