All right, so what is the options
assignment risk?
When do you have to worry and when
can you chill? That's what we're
going to talk about right now.
Especially when you are selling
options, selling options can
be very lucrative.
Now, as you know, this is how I took
a $25,000 account to
$45,000 in a matter of just two
months. But when you're getting
assigned, then it gets risky.
So let's talk about the options
assignment risks so that you know
whether you are in trouble or
not. So, first of all,
let's review.
When you are a call
buyer, so if you are
buying a call option, you
have the right to
buy a stock at
a certain strike price.
Let's just for this example, talk
about Apple.
And I want to take a look live at
the markets for you right now so
that you see of what exactly
here is happening.
Apple right now is trading
at
$318. Now, let's say that
you are a call buyer
and you bought the
$315 call.
What does this mean?
It means that you have the right
to buy this stock right
now for
$315. And since it is right
now trading at
$318,
$318.28 to be exact, you could sell
it right away.
And in this case, you would make
a $3 profit.
$3 per share that you are trading,
and options come in 100 packs, so
it would be $300.
Is this making sense thus far?
OK. So the idea here is that you're
holding this call, so you bought
this at some point.
So let's switch over to
the live quotes, and I'm going to
TastyWorks here, I'm bringing up
Apple and I want to look at the
$315 call that
has one week left
in expiration.
And as you can see, with one week
left in expiration, it is right
now trading at $6
over $6.10.
So what does this mean?
It means that instead of
exercising this if you are
the call buyer,
you could exercise it and make $3,
or if you sell your
call right now
to somebody else who wants to
buy it you could make
$6. So let me ask you this,
if you were the call buyer right
now, would you exercise
this option or
would you rather sell the option?
Now, obviously, you would rather
sell the option because you make
twice as much money.
Is this making sense thus far?
Because I want to show you now how
this changes if you don't
have any time left to expiration.
So with this here, you have one
week left, so
we have some time value in there.
Now, let's jump back onto the
screen and let's take a look at the
options that expire today.
Because I'm recording this on a
Friday and there are options
that are expiring today.
So here right now, as you can see,
the $315 call
is trading at $3
over $3.20.
So as you can see right now,
the option is trading at
$3. So therefore, does
it make sense to right now
try to sell the option, or
should you exercise?
You see, as you're getting really
close to the expiration,
the risk of getting exercised
is much, much higher.
But before this, as you can see
here, we have a whole
week left.
And when we have a whole week left,
it is way more advantageous
for the call buyer
to sell it to somebody else
instead of exercising it.
So if you are on
the other end, if you are
a call seller,
you are not risking getting
exercised, even though right now
this particular option, the
$315, would be
in the money.
Now, in a moment, I want to show you
another example for a put option.
But let me ask you this, thus far
is this making sense?
I want to make sure that I'm not
going too fast here.
So if this is helpful thus far, do
me a favor click on like really
quick, because this way I know how
fast or slow I can go in these
videos. OK.
So now let's make a put example,
because as you know, I have been
selling puts.
So if somebody is
buying a put, a put buyer
has the right to
sell a stock
at the strike price.
Now here for this example,
I want to use an example that I
personally did, and I'm doing it
right now, Hertz.
So Hertz is trading
at $2.87.
So $2.87 is the current price and $3
could be a strike price.
So this means if somebody
has bought this put, he has the
right to sell for
$3, could buy it back right
now at $2.87
and he would make $0.13.
That would be the profit
if the option gets exercised.
But again, let's take a look
at the current prices.
So I'm going to switch back to the
desktop and we
are looking here at Hertz
and we want to see if we have
one week left of expiration
in the $3 strike price.
So this means that right now the
stock price has dipped below
the strike price and you see some
traders believe that as soon as
it dips below the strike price,
they are getting assigned.
That is not the case as long
as you have time left and here's
why. Let's actually take a look at
Hertz, and with a week left you
see, the $3 put right now
is trading at $0.85
over $0.90.
So this means that instead
of making $0.13
if the put buyer would exercise
it, he could actually make
right now $0.87,
if he would just sell the option.
So this is with one week
left.
So long story short,
as you can see, as long
as there is still time left
on the clock before it expires
it is very, very, very unlikely
that somebody would exercise
the option because they could
make more money by just
selling their option to
somebody else.
So when should you worry
about getting assigned?
You should worry about getting
assigned when the current price
of a stock is trading below
your strike price if you sold a put,
or above your strike price
if you sold a call, and you have
only one or two
days left of expiration.
Anything before this, it is
very unlikely that you are getting as
signed.
Now, however, there's one more thing
that I want to mention.
As soon as you see
that the stock price dips below
the strike price when you sold to
put or goes above, you should
actually think about possibly
unwinding your position because now
it might continue to rise and
you might sit at a larger loss.
But that is a topic for another
video because in this video
I wanted to talk about the option
assignment risk, when to worry
and when to chill.
And now you know of
when you should worry and when you
can chill.
Long story short, as long as there's
still a time left on
the clock, which is more than two
days, you'll be fine.
Is this helpful and is this making
sense? Because if it is, do me a
favor and click on like so that
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Oh yeah, and there's probably some
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right now. If you enjoyed this one
you might enjoy one of these other
videos. I'll see you in the next
video.