Hello.

    This is my first spread and I am trying to learn & understand what happens if I get early assigned on the following PUT credit spread I sold.

    Details of the trade:

    • Sold vertical put credit spread on ZM. Long put = $55. Short put=$65. Expiration 7/19 eg 50 days away. ZM current price = $60.53

    I believe I do understand these 2 potential outcomes of a put credit spread:

    • BOTH puts are OTM before expiration: I can close and keep premium. Would close before expiration no matter what to avoid pin risk (moves after market close).
    • BOTH puts are ITM. Max loss of spread. Bought long put exercised to put shares to someone else at long put strike price.

    BUT what if I am early assigned in my trade above with long put OTM and short put ITM… 

    Specifically my questions if early assigned:

      1. Related to assignment part:
      • 1.1. even if Fidelity allowed me to sell the spread because I have the min collateral amount (eg $1000 here) – do I actually need the cash to cover the full assignment price of shares? 
      • 1.2. if I do not have the full amount to cover assignment, are the shares bought on margin and I am accrued interests temporarily?
      1. Related to the bought long put ITM which is not expired: 
      • 2.1 If I have the full cash to cover assignment, I guess I can myself sell the shares at market price. And sell the long put for a few $ extra. Correct?
      • 2.2 If I do not have the full amount to cover assignment, does Fidelity automatically exercise the long put and I end up with max loss of spread? or do I get still the opportunity to sell the shares at market price?

    Thank you

    Understanding early assignments on put credit spread
    byu/Natural_Fab_0814 inoptions



    Posted by Natural_Fab_0814

    1 Comment

    1. I think every broker handles it differently; call/message Fidelity and ask them about their process of handling early assignment.

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