Supporting documentation for any claims, if applicable, will be furnished upon request. Before trading options, please read Characteristics and Risks of Standardized Options. Certain complex options strategies carry additional risk. Options trading entails significant risk and is not appropriate for all investors. If assignment occurs prior to the ex-dividend date, the client will owe the dividend payment because the account is now short shares, unless shares of the underlying security are already held in the account.Įarly assignment also changes the strategy from a calendar spread to a synthetic long put if you don’t already own shares, because you are short a stock and long a call, which is a very different outlook. If this is the case, the probability of assignment increases significantly. Significant movement in either direction in a short period may be costly because of the way the higher gamma (the rate of change, or sensitivity, to a price change in the underlying security for delta) affects short-term contracts.Īnother risk to this position is early assignment when selling shorter-term contracts (especially with calls), where the expiration date follows the ex-dividend date. The profit/loss diagram of a calendar spread shows that when the stock price increases, this type of trade suffers.
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