#593 - Can Option Assignment Help Turn A Trade Around?

Episode of: The "Daily Call" From Option Alpha

< Back to The "Daily Call" From Option Alpha
May 8, 20193m
594
#593 - Can Option Assignment Help Turn A Trade Around?
May 8 '193m
Play Episode

Hey everyone. This is Kirk here again from Option Alpha and today, we’re going to be answering a question I just got the other day from a member which is – “Can option assignment help turn around a trade?” And I thought this was an interesting question, not one typically that we usually get, but it’s an interesting topic because the thought process here is A, if I have a trade that’s going against me or that’s not working out, can I somehow use the process of assigning the contract or being assigned the contract as a means to an end to then help turn the position around? And the only thing I could think of that might help turn a position around is just simply more time, but time does not require you to be assigned or to go through the assignment process. You could just as easily roll option contracts, even contracts that are challenged or in the money. You can roll those contracts to the next month, keep your capital allocation low because you don’t have to purchase or short sell the stock and you can use that contract and extend the trade duration.

In all honesty, other than extending time which is basically all you get when you get through an assignment or you get delivered shares or you’re short shares, now you have to deal with them, but you can theoretically hold them for forever. That’s the only thing you get. I don’t think that that is enough to say that option assignment can help turn a position around. The underlying option contract is based on where the stock is at the time and during the expiration cycle, so switching from the option contract to the underlying stock and just moving from one relative thing to the other relative thing is not going to turn your position around. If anything, you’re going to lose any time value potentially left in the contract and you’re going to have a massive capital exposure to now hold the outstanding shares of stock versus potentially a fifth or a fourth of the capital invested to hold the option contract and cover it with margin or to just hold it in cash. I really don’t think that option assignment or going through the exercise process, in either case, is anything that can help turn a position around, so you probably shouldn’t lean on it as a failsafe.

Hopefully this helps out, a very good question. As always, if you guys have any of these questions that pop into your head and you want to ask them here on the podcast, please head on over to optionalpha.com/ask. Leave me a message. I love getting messages. We’ll reply back to you and we’ll add them to the upcoming shows until next time, happy trading.

0:00 / 0:00