jdharmon22 Posted April 27, 2017 Posted April 27, 2017 I am new to option trading. I noticed that with the calendar strategy we normally sell puts at the short expiration date. In the case of Google, one contract is about $85,000 worth of stock. If the option gets exercised how does one pay for the stock? In a recent GOOG calendar, the trade involved 4 contracts...4 * 85,000 = $360,000. That seems like a lot of money to be throwing around...especially if the account doesn't have funds to cover it. I realize the strategy involves buying calls that expire a week out, but still there would be a margin call before that call option could be exercised. Can someone calm my nerves? Quote
Kim Posted April 27, 2017 Posted April 27, 2017 New members, please read more about pre-earnings calendars here. "Many members are concerned about early assignment if one of the short legs becomes ITM. Since there are upcoming earnings, there always will be a lot of time value on both options, so it doesn't make sense for the holder of those options to exercise them. So there is no early assignment risk - in fact, early assignment would be a blessing for us. " I highly recommend, once again, that all new members read the relevant links. 1 Quote
jdharmon22 Posted April 27, 2017 Author Posted April 27, 2017 34 minutes ago, Kim said: New members, please read more about pre-earnings calendars here. "Many members are concerned about early assignment if one of the short legs becomes ITM. Since there are upcoming earnings, there always will be a lot of time value on both options, so it doesn't make sense for the holder of those options to exercise them. So there is no early assignment risk - in fact, early assignment would be a blessing for us. " I highly recommend, once again, that all new members read the relevant links. Quote
jdharmon22 Posted April 27, 2017 Author Posted April 27, 2017 I realize there is not much risk of an early assignment in this type of trade, but if one did occur and there was not enough money in the account to pay for the stock, what would happen? Quote
Kim Posted April 27, 2017 Posted April 27, 2017 Depends on the broker. But in any case, you are fully covered by the long options, so you can close the stock and the option positions. Quote
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