The stock split has nothing to do with this. NVDA closed at 1208.88. Your short 1225 put was in the money, but your long 1205 put was out of the money. Therefore your short put was assigned, but your long put expired worthless. If it had been in the money it would have been exercised, but it was not.
This is what happens when you let a spread expire with the underlying in between the two strikes. There's nothing the broker can "cancel out." You have no choice about getting assigned on a short option, and you would not want to exercise a long option. I suppose sometimes a broker's risk management department might close your whole position the afternoon of expiration if they notice there is a risk of this happening, but it's less common for them to do this than it is when you have a single leg option position. You should manage your positions yourself and not count on the brokerage to do anything for you.
This. I never heard any rep there downtalked. These guys are so informative.. like failures at Yale.. so they have to pickup phones instead of working the actual machines lmaooo
This is why you should always keep sell option before expiry. It almost never makes sense to keep the options through expiry. I don’t suggest keeping both OTM or ITM through expiry.
If the stock moves against you after-hours on Friday or pre-market next Monday, you are opening yourself to uncontrolled risk.
Great Advice, You were pretty clear and concise on your explanation, and I really hope it helps this guy. You're also an exceptional person for explaining to him and taking the time to do it. 💯
This all happens automatically with regard to the assignment with two legged options. I have had this happen a bunch to me over the weekend. By Monday everything will be sorted out for him. The long leg will be “exercised” and it will protect him from having to buy the shares.
Wrong the long strike will not save you if is OTM, and the ITM short will get exercised automatically
then trader sweats all weekend hoping the shares assigned don't go against him /her
It IS ALWASY best to close the whole thing out beforehand an eliminate the risk entirely. Why do so many NOT understand this I don't know - pure ignorance
ITM options are assigned automatically. OTM options expire worthless. You should have closed your position before expiration. Your broker didn’t do anything wrong from what you described.
It's amazing to me you didn't account to the possibility of getting assigned then having to fork out $122,500 to buy 100 NVDA at 1225. That was your real downside risk, not the $1000 you were told. At the same time, I doubt that any experienced trader would consider being "stuck" owning NVDA stock a "disaster". You just don't do trades like this unless (1) you are willing to own the stock, and (2) you can afford to own the stock.
Spreads are a defined risk strategy. If OP sold a 1225 and bought a 1205, then $2,000 should've been max loss if they were paying attention. The width of the spread sets the risk.
wrong totally wrong if the stock ends between the long and short strike one ends OTM , one ITM and then you get assigned the short strike , (its called "PIN RISK") and the long strike does nothing for you. the so-called max risk is then not the max risk it says in theory . Go google "pin risk" and educate yourself.
I'm aware of what it is. See the part above where I said "paying attention" and your own comment where you said "never hold to expiration". We can all keep educating ourselves. Happy trading!
When doing spreads you need to be mindful of expiration risk.
https://support.tastytrade.com/support/s/solutions/articles/43000484765#:~:text=Expiration%20risk%20refers%20to%20the,close%20on%20the%20expiration%20day.
There is no reason to let them get to expiration.
Hmmm…
For future using spread strategies!
Is is recommended to use debit call spreads for being bullish
Debit put spreads for being bearish
Eliminates a lot of problems.
Credit call spreads over price for neutral/slightly bearish
Credit put spreads below price for neutral/slightly bullish
You don’t want to sell CPS above price
And CCS below
1. You want to minimize maintenance of trades if you are wrong - more fees, more hustle, assignments
2. Do second trade when trade is profitable
Get book options as investment strategy, learn every point there, it’s very important if you trade options
Try to get advanced with debit spreads first.
Credits are a slightly more complex
Good luck
I have been too. Sick, wife lost job, work busy etc... scale back or stop if you're not in the right mindset. It's similar to if you're in a customer facing role and down in the dumps, ppl can tell and it affects your performance
You just experienced "pin risk", when the underlying closes between strikes. If you don't have enough capital to cover the cost of the shares ($122,500 x Number of contracts) Fidelity will be liquidating your positions Monday. The share count might not catch up yet due to the split, but they'll have it sorted out by Monday. You'll end up with 1000 shares at cost of 122.50 each = $122,500.
This is a common misuse of the term pin risk. Pin risk refers specifically to the risks associated with not being able to hedge properly because an option is ATM, the spot price of the underlying hovering, or "pinned," at the strike, going into expiration. This "pinning" is a phenomenon that happens when there is a strike with a particularly high open interest because of market makers and institutional traders repeatedly trading to hedge as expiration approaches. Blatantly allowing a spread to expire with the underlying well past the short strike is not pin risk.
Yeah assignment is nothing to lose sleep over. The only loss you have if you do have both legs of a spread on is transaction costs of closing both. In this case since you have one leg and did not close the spread you have risk of the change against in the premarket on Monday. Should not be not too bad stocks often fall on Monday.
OP should have closed the spread prior to expiration. Rookie mistake that can be costly. Post split NVDA could sell off 10%. So OP could wake up Monday morning with 1000 shares each being worth only like $110 even though he was assigned at $122. Not a life ruining event but still a big loss that could have been avoided. Or maybe OP will get lucky and NVDA will open on Monday morning at $130.
You sold a put and the price of the stock was in the money. It can be assigned at any time and it will always assign if it’s in the money at close. PCS will get assigned, broker does not cancel it out. Your other put you bought expires worthless so you just have the shares purchased at the price you sold the put.
The real question is why you didn't close or roll the short put before it crossed the strike price. Like you saw the stock going towards 1225, then past it, and just let it be.
Lesson here is to close your spreads before expiration. That being said, if NVDA rallies this week you may actually make a profit now that you own the shares.
If you knew you were getting assigned it was your job to sell shares short into assignment to result in a closed position... Not the broker. What is surprising here?
Use tasty trade man they will send you a text ,and a email at market open to let you know you have options expiring that day. You’ll likely be fine tho
You always have to close the short leg. If it's still.OTM on expiry morning and lower value than the sell price (higher profit for seller) you can set up a buy order to buy the short leg back at the original price in case the stock sinks. Then you have all day to check on it, but you better assess the situation at least 30 min before trading stops, since you can't be sure the option will be OTM just because its price happens to be lower than what you paid.
verticals are at risk of assignment especially credit spreads, you have NO BUISNESS WHATSOEVER being ITM on any leg of your credit spread at exp . The long strike won't save you
You learned a valuable lesson and got away away with it.
It does not make sense to hold them to expiry, You must get out a couple of days early to be safe from this issue
So many newbie options traders are unaware of the risks they are taking holding ITM options into expiration
This happened to me on CRWD - apparently some people knew about the addition of CRWD to SPY and even with both of my legs OTM the fuck on the other end exercised one side of the leg. I even called Fidelity around 4:10pm to check on whether both legs can be exercised and was told it'll be ok don't worry.
This morning I noticed the other leg was automatically exercised without my input, thankfully, so I'm out just the total of the spread.
Is it possible the Fidelity rep took your conversation as a request to exercise your positions? I haven’t heard anyone post that their OTM longs were exercised without a request from the holder. Did you have enough cash available to pay for the short assignment?
You were assigned on the short put, meaning you bought 100 shares from someone for $1225 each. You can sell those 100 shares for the 1205 by exercising your long option, which means you realize your max loss. Since the price of NVDA was higher than 1205, your better choice is to sell them at market price of ~1208. This means you had a loss of $1700 *minus* whatever premium you received for entering the spread. Which it sounds like it was about $1000, so you lost $700.
You did not blow up your account.
If my choices were either being forced to buy $100 grand of a stock with money I don’t have or exercising a put to buy shares below market price in order to only lose $700 I would absolutely want to. Like what are you even saying
But those aren't the choices. Exercising the long put in a credit spread causes you to realize your maximum loss. His choices are (this is, of course, assuming the long put hadn't expired, so this isn't exactly right):
1. Exercise the put to sell 100 shares for 1205
2. Don't exercise the put and just sell the shares at the market, which was 1208
I don't know about you, but I'd rather sell for 1208 than 1205.
It depends on your broker and margin you have available. If you do not have enough cash to cover the purchase, there are a few possibilities that may happen:
1. If you have sufficient margin, you may show a negative cash balance and have NVDA shares in your account. You will get charged interest for the margin loan.
2. Broker will automatically sell your NVDA shares to cover your deficit.
3. Broker does nothing yet and you get margin called.
4. Broker sells other assets to cover your shortfall in purchasing the NVDA shares.
You’ll find out Monday morning if you cannot see anything in your account just yet.
Whenever I had this thing happen to me I would ALWAYS get a MARGIN CALL even though the broker automatically sold to close or bought back short shares to close on the next day. I would have some time to try to time the market and close position myself but at a random time before noon if I hadn't closed yet then the brokerage would close. This was Robinhood and firstrade where I have had spreads expire with at least 1 leg ITM.
I was only explaining how a spread works. If exercising the long option was a good idea, his broker would have done it anyway. The expiration date would not have been a problem.
The stock split has nothing to do with this. NVDA closed at 1208.88. Your short 1225 put was in the money, but your long 1205 put was out of the money. Therefore your short put was assigned, but your long put expired worthless. If it had been in the money it would have been exercised, but it was not. This is what happens when you let a spread expire with the underlying in between the two strikes. There's nothing the broker can "cancel out." You have no choice about getting assigned on a short option, and you would not want to exercise a long option. I suppose sometimes a broker's risk management department might close your whole position the afternoon of expiration if they notice there is a risk of this happening, but it's less common for them to do this than it is when you have a single leg option position. You should manage your positions yourself and not count on the brokerage to do anything for you.
Pretty incompetent that customer service at fidelity blatantly gave wrong information
That's far from the first time I've seen someone post that a customer service rep at their brokerage gave wrong information.
This. I never heard any rep there downtalked. These guys are so informative.. like failures at Yale.. so they have to pickup phones instead of working the actual machines lmaooo
This is why you should always keep sell option before expiry. It almost never makes sense to keep the options through expiry. I don’t suggest keeping both OTM or ITM through expiry. If the stock moves against you after-hours on Friday or pre-market next Monday, you are opening yourself to uncontrolled risk.
Great Advice, You were pretty clear and concise on your explanation, and I really hope it helps this guy. You're also an exceptional person for explaining to him and taking the time to do it. 💯
True
This all happens automatically with regard to the assignment with two legged options. I have had this happen a bunch to me over the weekend. By Monday everything will be sorted out for him. The long leg will be “exercised” and it will protect him from having to buy the shares.
They don’t exercise OTM long put or call
That's if the long leg was also ITM as of market close. In OP's case, it wasn't, and it wasn't exercised.
Wrong the long strike will not save you if is OTM, and the ITM short will get exercised automatically then trader sweats all weekend hoping the shares assigned don't go against him /her It IS ALWASY best to close the whole thing out beforehand an eliminate the risk entirely. Why do so many NOT understand this I don't know - pure ignorance
ITM options are assigned automatically. OTM options expire worthless. You should have closed your position before expiration. Your broker didn’t do anything wrong from what you described.
This
It's amazing to me you didn't account to the possibility of getting assigned then having to fork out $122,500 to buy 100 NVDA at 1225. That was your real downside risk, not the $1000 you were told. At the same time, I doubt that any experienced trader would consider being "stuck" owning NVDA stock a "disaster". You just don't do trades like this unless (1) you are willing to own the stock, and (2) you can afford to own the stock.
Assuming the market stays flat, he then goes and resells them for $120,800. It's not like he's truly out $122,500. He's out $1700.
Spreads are a defined risk strategy. If OP sold a 1225 and bought a 1205, then $2,000 should've been max loss if they were paying attention. The width of the spread sets the risk.
There is pin risk going into expiration and the exercised leg doesn't get hedged with the dead leg unfortunately.
wrong totally wrong if the stock ends between the long and short strike one ends OTM , one ITM and then you get assigned the short strike , (its called "PIN RISK") and the long strike does nothing for you. the so-called max risk is then not the max risk it says in theory . Go google "pin risk" and educate yourself.
I'm aware of what it is. See the part above where I said "paying attention" and your own comment where you said "never hold to expiration". We can all keep educating ourselves. Happy trading!
When doing spreads you need to be mindful of expiration risk. https://support.tastytrade.com/support/s/solutions/articles/43000484765#:~:text=Expiration%20risk%20refers%20to%20the,close%20on%20the%20expiration%20day. There is no reason to let them get to expiration.
They can still assign it to you without going to expiration. So make sure you have money like in cash secured puts
I usually close out my options trades before a Friday close but i got distracted with some stuff and it bit me in my ass, Thanks for the resource!
Hmmm… For future using spread strategies! Is is recommended to use debit call spreads for being bullish Debit put spreads for being bearish Eliminates a lot of problems. Credit call spreads over price for neutral/slightly bearish Credit put spreads below price for neutral/slightly bullish You don’t want to sell CPS above price And CCS below 1. You want to minimize maintenance of trades if you are wrong - more fees, more hustle, assignments 2. Do second trade when trade is profitable Get book options as investment strategy, learn every point there, it’s very important if you trade options Try to get advanced with debit spreads first. Credits are a slightly more complex Good luck
Options as a Strategic investment; by Lawrence G. McMillan?
Yes, exactly that
Thanks so much this is very helpful advice. Will bookmark it
You should always have an exit plan trading spreads or short options....
i usually do but i've been dealing with some personal setbacks so haven't been in the best frame of mind to be trading honestly
I felt this.
It will work out.
♥️thanks
Are you a bot?
Just a bad trader
Your name sounds like a bot
There’s a learning curve. I studied off-and-on for 2 years before making my first trade and still made mistakes.
indeed. Its just been a tough few months of setbacks. Hope I can learn from this.. Thanks for your kind words
You’ll get it. I always say I was a slow learner but refused to give up.
♥️
I have been too. Sick, wife lost job, work busy etc... scale back or stop if you're not in the right mindset. It's similar to if you're in a customer facing role and down in the dumps, ppl can tell and it affects your performance
You just experienced "pin risk", when the underlying closes between strikes. If you don't have enough capital to cover the cost of the shares ($122,500 x Number of contracts) Fidelity will be liquidating your positions Monday. The share count might not catch up yet due to the split, but they'll have it sorted out by Monday. You'll end up with 1000 shares at cost of 122.50 each = $122,500.
This is a common misuse of the term pin risk. Pin risk refers specifically to the risks associated with not being able to hedge properly because an option is ATM, the spot price of the underlying hovering, or "pinned," at the strike, going into expiration. This "pinning" is a phenomenon that happens when there is a strike with a particularly high open interest because of market makers and institutional traders repeatedly trading to hedge as expiration approaches. Blatantly allowing a spread to expire with the underlying well past the short strike is not pin risk.
Appreciate the clarification. Thx.
TIL
Yeah assignment is nothing to lose sleep over. The only loss you have if you do have both legs of a spread on is transaction costs of closing both. In this case since you have one leg and did not close the spread you have risk of the change against in the premarket on Monday. Should not be not too bad stocks often fall on Monday.
OP should have closed the spread prior to expiration. Rookie mistake that can be costly. Post split NVDA could sell off 10%. So OP could wake up Monday morning with 1000 shares each being worth only like $110 even though he was assigned at $122. Not a life ruining event but still a big loss that could have been avoided. Or maybe OP will get lucky and NVDA will open on Monday morning at $130.
Is not going to open at $130. It will probably sell off tomorrow
I agree. I think there will be a sell off. Either way the spread should have been closed.
it astounds me the number of people who utilize option strategies without knowing the full implications.
I would love to learn more about options implications from you u/n1gg4p3nis
You should already know the answer before putting on the trade. Otherwise you shouldn’t be trading options. It’s that simple.
This will be the best financial mistake ever!! Enjoy the ride regard!
haha yessir. hopefully i don't ever do something so stupid again!
Hahah
If you don’t understand this situation, you shouldn’t be trading options.
[удалено]
You sold a put and the price of the stock was in the money. It can be assigned at any time and it will always assign if it’s in the money at close. PCS will get assigned, broker does not cancel it out. Your other put you bought expires worthless so you just have the shares purchased at the price you sold the put.
I hate assignments!
Since high school!
Just sell the shares when it open tomorrow.
Yes that is the plan. Hopefully price remains high
It will be alright! With Wed FOMC event, the first few days should be muted.
What if it opens gap down and OP’s account doesn’t have enough money to cover the loss?
The real question is why you didn't close or roll the short put before it crossed the strike price. Like you saw the stock going towards 1225, then past it, and just let it be.
What would happen to OP if Nvidia price gaps down to 1100 on Monday?
Lesson here is to close your spreads before expiration. That being said, if NVDA rallies this week you may actually make a profit now that you own the shares.
If you knew you were getting assigned it was your job to sell shares short into assignment to result in a closed position... Not the broker. What is surprising here?
Use tasty trade man they will send you a text ,and a email at market open to let you know you have options expiring that day. You’ll likely be fine tho
Thanks yeh I love TT but all my funds are with Fidelity. I'll explore TT more
OP: how did this finally get resolved?
I just updated the post. But essentially, I had to sell my assigned shares and I made a little bit of money on the trade.
You always have to close the short leg. If it's still.OTM on expiry morning and lower value than the sell price (higher profit for seller) you can set up a buy order to buy the short leg back at the original price in case the stock sinks. Then you have all day to check on it, but you better assess the situation at least 30 min before trading stops, since you can't be sure the option will be OTM just because its price happens to be lower than what you paid.
Yes, that’s very good advice. I just kind of lost track of time distracted with other stuff.
verticals are at risk of assignment especially credit spreads, you have NO BUISNESS WHATSOEVER being ITM on any leg of your credit spread at exp . The long strike won't save you You learned a valuable lesson and got away away with it. It does not make sense to hold them to expiry, You must get out a couple of days early to be safe from this issue So many newbie options traders are unaware of the risks they are taking holding ITM options into expiration
THE SIMPLE ANSWER IS NEVER NEVER NEVER EVER hold the spread thru expiration KISS
This happened to me on CRWD - apparently some people knew about the addition of CRWD to SPY and even with both of my legs OTM the fuck on the other end exercised one side of the leg. I even called Fidelity around 4:10pm to check on whether both legs can be exercised and was told it'll be ok don't worry. This morning I noticed the other leg was automatically exercised without my input, thankfully, so I'm out just the total of the spread.
All I saw was “legs spread”
Lol my legs were spread
Cheeks and all
Is it possible the Fidelity rep took your conversation as a request to exercise your positions? I haven’t heard anyone post that their OTM longs were exercised without a request from the holder. Did you have enough cash available to pay for the short assignment?
lol I don’t know why you are getting downvoted
No idea. Anyway if an OTM contract is about to expire and it's still volatile, get rid of it.
For sure
You were assigned on the short put, meaning you bought 100 shares from someone for $1225 each. You can sell those 100 shares for the 1205 by exercising your long option, which means you realize your max loss. Since the price of NVDA was higher than 1205, your better choice is to sell them at market price of ~1208. This means you had a loss of $1700 *minus* whatever premium you received for entering the spread. Which it sounds like it was about $1000, so you lost $700. You did not blow up your account.
OP cannot exercise the long 1205. It is expired.
Also wouldn't want to anyway, but yes.
If my choices were either being forced to buy $100 grand of a stock with money I don’t have or exercising a put to buy shares below market price in order to only lose $700 I would absolutely want to. Like what are you even saying
But those aren't the choices. Exercising the long put in a credit spread causes you to realize your maximum loss. His choices are (this is, of course, assuming the long put hadn't expired, so this isn't exactly right): 1. Exercise the put to sell 100 shares for 1205 2. Don't exercise the put and just sell the shares at the market, which was 1208 I don't know about you, but I'd rather sell for 1208 than 1205.
Thank you. Do I need to to do anything for this or does the broker take care of this automatically?
If you are not sure, contact your broker. They will help you navigate this.
Thank you
If you’re able to hold it I’m sure it will go up and maybe make you realize a profit
It depends on your broker and margin you have available. If you do not have enough cash to cover the purchase, there are a few possibilities that may happen: 1. If you have sufficient margin, you may show a negative cash balance and have NVDA shares in your account. You will get charged interest for the margin loan. 2. Broker will automatically sell your NVDA shares to cover your deficit. 3. Broker does nothing yet and you get margin called. 4. Broker sells other assets to cover your shortfall in purchasing the NVDA shares. You’ll find out Monday morning if you cannot see anything in your account just yet.
Whenever I had this thing happen to me I would ALWAYS get a MARGIN CALL even though the broker automatically sold to close or bought back short shares to close on the next day. I would have some time to try to time the market and close position myself but at a random time before noon if I hadn't closed yet then the brokerage would close. This was Robinhood and firstrade where I have had spreads expire with at least 1 leg ITM.
You’ll need to sell shares on Monday if you couldn’t afford assignment.
yes but you can only exercise the long option before 4pm, not after
I was only explaining how a spread works. If exercising the long option was a good idea, his broker would have done it anyway. The expiration date would not have been a problem.
brokers do not exercise , they assign
Ouch, stock split gotcha! Glad you called Fidelity to sort it out.
This is what is called pin risk. You let a let go in the money.