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  • Options getting exercised?

    October 5, 2009 by  
    Filed under Double Calendars, Iron Condors, Options, Training Videos

    Q: I was able to make it through some of the videos last night and this morning.
    Pretty straight forward so far, I understand the criteria for placing the Iron Condors and Double Butterflys and also, the adjustments and when and why..
    But I would like to see you do a video or tell me how to handle the rare case of getting exercised on either a short put or call. Especially how to handle getting exercised for the vertical spreads of a Iron Condor and also the shorts of a Calendars.

    Perhaps this is just my lack of knowledge of this, but I know more than most about options and I still have question about closing out or handling my PUT/CALL shorts being exercised. I would expect this type of trading can result in several shorts being in the money before expiration.

    Great videos, I will keep going..

    A: As far as getting exercised goes… here’s the general
    criteria:

    If a ‘short’ option is:

    1) ‘in-the-money’ AND
    2) there is less than .25 of extrinsic value left

    … then you’re likely to get exercised.

    Lastly:

    3) you are MORE likely to be exercised if it’s a stock or etf and it pays a dividend and you’re short the option near ex-div dates if the option meets the criteria above.

    The exercise happens overnight and if you meet the criteria above you will get exercised and you’ll see in your portfolio that the option position that was in the money is gone and you will have the stock in your account instead (long or short, depending if the option that was exercised was a put or call).

    If you do not want the stock position you can sell it in the pre-market if your brokerage account allows trading in the pre-market.

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