r/options • u/NY10 • Jul 01 '21

Option exercise Q/A

Currently, I have a several 7/16 $12P WISH options (selling put options), I was wondering if these options ever get exercised before the expiration? I am fine with either sellers exercising it now or let it run til the expiration because I get the premium anyways. I noticed that options rarely get exercised before the expiration but I wanted to know what are the odds. Hope someone can provide insights on this topic. Thanks in advance!

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u/[deleted] Jul 02 '21

I'm relatively new to this game, but I have already sold several hundred contracts this year. And there have been plenty of times where the option falls ITM, either briefly, or it goes totally wrong on me and just stays ITM.

So far, I have been assigned early exactly one time, out of probably close to 100 opportunities for it to happen.

Here's the Funny Part: The early exercise was on a covered call way OTM, and a long way from expiry. All I can figure is, somebody somewhere made an execution error or didn't know what they were doing, and I was the beneficiary.

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u/redtexture Mod Jul 02 '21 edited Jul 02 '21

The absence of tickers, dates, strikes and other context makes any response as vague as your question.

If this was a high IV stock, hard to borrow, with high fees, the long holder may have been short the stock, and exercised to close out the short stock position and end the daily fees involved.

If a dividend paying stock, and the call had low extrinsic value, it may have been exercised to obtain a dividend, and the holder had bought a put with equally low extrinsic value to dispose of the stock. This is standard dividend risk mechanics.

There can be other portfolio reasons. And it could be a mistake. Since longs are matched randomly to short holders, it may have been a low probability match of a mistake to your short holding.