Friday, March 25, 2016

AAPL 2016 Update #78 (Stock Assignment)

Stock Assignment

Being short a call option that is the same as instructing to sell shares at a specific strike price upon expiration of that option, or sometimes if prior to expiration by the counterpart option owner. Short options have the obligations to either sell shares (short call) or buy shares (short put). 

Long options have rights to buy or sell which can be exercised (counterparty of assignment) at any time.

Having an obligation means the account holder must have the necessary capital or existing shares to cover.

In the case of being short 8 calls, the account has an obligation to sell 800 shares (100 X 8 contracts) at the given strike price.

Most brokers charge an assignment fee or ticket charge to disperse the option and sell/buy the shares. With this new broker, there are no fees for this transaction.

The trade log for an assignment is shown below.


Fig 1 - Option Assignment

On the day of expiration after the market closes, the OCC (Options Clearing Corp.) settles up all ITM options with the underlying.

In the case of being short 8 contracts, the OCC assigned 8 contracts and sells 800 shares at 94. The cash from the sale is made immediately available in the account for use at the next market open.

The option itself is deemed worthless and is removed off the books for 0.00. This happens during after hours overnight to settle all accounts.

My broker for this event does not charge any commissions.



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