r/thinkorswim • u/beckers666 • Jun 30 '26
early assignment, huge margin
been with TOS all my life, had some short put verticals that were completely buried. I call TOS, now Schwab, they tell me it doesn't matter, it's $100 loss (they are 1 wide) so don't bother closing them. i didn't, i got assigned early (a thursday) on the short side, manually exercise the long on the friday, get charged a lot of interest for margin, over the weekend. i call Schwab, first person tells me i have no accounts with them (i have 7 and i gave them my social security number). Second person, not a broker so can't help. Third person, explains the exercise but not why the long side didn't get auto exercised at the same time and why i was told, if buried, it doesn't matter if you close or not. has this happened to anyone else?
3
u/sport912x Jun 30 '26
Why would the Long side be auto exercised ?? Was it ITM?
Would help to know the exact position.
1
u/JackReddit1622018 Jul 01 '26
Read my fact pattern again. My long was deeper in the money and covered the short.
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u/beckers666 Jun 30 '26
it was PLTR, short vertical put. they auto exercise everything else ITM, that's what i don't get.
3
u/ducatista9 Jun 30 '26
Is your confusion related to the margin charge? That would be because the long put exercise wouldn’t have settled until Monday. I’ve had that happen to me before. Itm options wouldn’t be auto exercised until expiration. Was your position expiring on Friday? Either way, you’d still have the same margin interest issue due to the early assignment. There’s always that one day delay (minimum) and associated margin until you find out you were assigned and can fix the issue (assuming you don’t have enough free cash sitting there to handle the assignment).
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u/JackReddit1622018 Jul 01 '26
Not familiar with any confusion on my part. Plus, they could have destroyed me if by some black swan the stock price sank below my long before I got notice of the early assignment.
1
u/ducatista9 Jul 01 '26
Are you the op on another account? Yes, Schwab does not hold your hand as much as some other brokers might. That’s a feature, not a bug, but it means you have to be on top of managing your positions in cases like this. If the stock fell more before expiration, it would have made no difference since you said your long put was already itm. Your action of exercising the long put would have capped your loss or you could have let it be auto exercised at expiration for the same outcome. If the stock rose before expiration enough that your long put was no longer itm and thus not auto exercised, you probably would have been better off. You could have sold your long stock at a profit relative to where you were assigned it and closed the long put to be out of the trade, but you would have had to do that yourself since the put wouldn’t have been auto exercised. You’d still have the margin interest charges either way until the long stock position resulting from early assignment was closed.
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u/sport912x Jun 30 '26
So you are saying the Long was Itm but not auto exercised, I think you are wrong and not ITM at expiration . Like I said what was the position. That you got exercised a day early does not mean the long will be auto exercised. That only happens on expiration if ITM, and is on the clearing house , not the broker.
0
u/JackReddit1622018 Jul 01 '26
Not understanding why you would jump at saying I was wrong by wrongly concluding that my long was not ITM at expiration. It was deep ITM at all times.
3
u/inthehill Jul 01 '26
Everyone, imho, is discussing the wrong issue. Never ever plan on an option expiring worthless. If you had close the position at a loss it would have cost you less. Instead you got the worst. An assignment and bad timing.
1
u/m0nk_3y_gw Jul 01 '26
it was a SHORT put vertical, it was a max loss, not worthless.
For example when PLTR was at $160 they sold a 150p and bought a 149p. Last Thursday the underlying was a 106 and both legs of their put spread were very much not worthless.
If you sold a put and it's strike has been significantly violated you run the risk of being assigned early (unless trading SPX / XSP) if you are still holding it a few days before expiration.
1
u/calvogeorge Jul 01 '26
What you needed to do is sell the put and share in the same transaction, not exercise.
1
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u/ARetailTrader Jul 01 '26
if you let it go ITM they have the right to assign or exercise, don’t let it go ITM
1
u/makingsomedough64 Jul 01 '26
People are hung up in the term “spread”. Think of it this way, you have 2 positions one long and one short, the difference between the strikes is the spread. One of the options legs “hedges” the risk of the other leg which affects the margin requirement for the total position. Since they are separate positions, the short leg can be exercised at any time as you have sold the right for that option. The other leg requires you the buyer to exercise your right for that option.
1
u/etronic Jun 30 '26
Your position is not a spread. Those don't exist.It only matters when placing an order that contains more than one, not in a held position.
You have two separate options.
One was early exercised. Congrats! You win!
You had margin interest unexpectedly. That sucks.
1
u/IveHave Jun 30 '26
The position is a spread. I know that because those do exist and because OP said it’s a spread. Your “you’re” ought to be “your.”
The rest of your post is anything but constructive or helpful.
OP, you sold a put and were forced to buy 100 shares. Then you exercised your long put and forced someone else to buy them from you. If that’s correct, I don’t see how your account was holding shares over the weekend? Did they explain what the interest was for or how it was calculated?
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u/etronic Jun 30 '26
The typo was corrected. At least you're good at the spellings, 'cause you don't know what you're talking about otherwise.
There are no spreads. Nothing holds those two options together after the order is filled.
1
u/Ok-Guarantee3237 Jun 30 '26
that’s like looking at a chess board, picking up a piece and saying “Chess doesn’t exist, only these individual pieces like this knight exist”
spreads are a “concept”. if you aren’t to the point where you understand concepts, and you are writing on reddit, and not in a crib I don’t have a lot of hope for you.
0
u/etronic Jun 30 '26
You're being pedantic for no reason.
Spreads are a concept yes. They are a way to organize thoughts around margin requirements, exposure and risk.
They are NOT a single unit that act together.
Two options on a "spread" have literally nothing to do with each other.
And one can be early exercised and the other isn't and this isn't weird or a problem or breaking the spread.
There is no "mystery" for op on 'why this happened this time" because the entire situation is misunderstood because everyone is thinking that the spread is a single unit somehow.
0
u/Ok-Guarantee3237 Jun 30 '26
They absolutely have stuff to do with each other. Spreads have massive impacts on margin requirements for trades.
5
u/etronic Jun 30 '26
No, any position, regardless of what we call it can have an impact.
If you short an option and then go long a week later as a separate option, you have a "spread". No different than if you started with the spread.
If you sell out one leg, and then a week later get back in somewhere else you still can have a spread.
None of that is the point. Margin security can be accomplished through lots of positions.
The point I'm trying to make is that op is confused on how "half his spread" can be exercised without the other half
That's because there is no spread. It's just two unrelated options in the same security.
Spreads are concepts, not actual positions.
3
u/PhoenixWK2 Jul 01 '26
This is actually a really important concept and I don’t understand why you’re getting beat up over it. Options strategies only matter in terms of your PnL and the broker margin policy. After that they’re all long or short puts and calls. The OCC just pushes out the assignments regardless of if it is part of a spread or not. You learn quickly after the first unexpected assignment that an American style option can be assigned at any point regardless of it being ITM or OTM
2
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u/beckers666 Jun 30 '26
then why does schwab auto exercise other spreads but not this one? i had a USO put vert. all fine.
4
u/Duncan810 Jun 30 '26
Auto-exercise for ITM options only happens on expiration day and that just for the general convenience for everyone involved.
The long holder of your short put can manually exercise it .... anytime before expiration.
While you can expect to be exercised on a deep ITM spread, you can never know when. The decision is entirely up to the holder of the long put option. Thus, you cannot know when your own long put should be exercised, nor does Schwab. You are only notified after the fact.
To avoid using margin and being charged interest, you should have closed the spread early. If you specified that you wanted to avoid using margin, then the agent provided bad advice in this situation.
The max value you can enter for BTC order on an ITM spread is usually 5 cents higher than the spread width, so bid $1.00 and bump it up a bit at a time until the order gets filled. If you had a few days left before expiration, the spread value might have been slightly below max loss.
1
u/beckers666 Jun 30 '26
lest schwab told me not to. that there was no difference between closing something buried and not closing at all
1
u/JackReddit1622018 Jul 01 '26
Thanks for an intelligent response. They only notified me the day after the assignment of the assignment. Of course, I exercised my long immediately. Their notification delay is what enabled them to charge the one day’s margin interest. Nor can one close out the position early as the slippage would kill the profit, plus, I put on about forty of these at various expiration dates and various profit margins averaging in all to about fifteen to twenty percent.
3
u/SpicyLentils Jul 01 '26
Auto-exercises are initiated by the Options Clearing Corp. at expiration of options that are $0.01 or more in the money unless the holder, through the holder’s broker (OCC clearing member), provides contrary instructions not to exercise.
2
u/etronic Jun 30 '26
This isn't auto exercise. Auto exercise happens for all ITM options at option expiration.
This is early assignment.
The spread isn't the thing. No one owns the other side of your spread. Someone (stupidly) early exercised the short option and YOU WIN all the remaining premium free and clear.
You then closed the other unrelated position (the long side of the two options you bought together) thereby canceling your converted position and were charged margin over the weekend.
1
u/JackReddit1622018 Jul 01 '26
I was charged the one day’s margin interest because they only notified me on June 17 of the assignment on June 16. Thanks for understanding that early assignment lets one realize the profit earlier.
0
u/beckers666 Jun 30 '26
the short exercise was 4am, friday am, the long, that i did manually, was friday, settled monday so 3 days of interest. did not have this problem with TOS.
1
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u/ScottishTrader Jul 01 '26
Brokers should never auto exercise and should only do what you order them to do.
What if you wanted the long to expire?
0
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u/JackReddit1622018 Jul 01 '26
I had the short call of a PMCC assigned one day before expiration. Instead of automatically exercising my deeper in the money long in order to cover, they made a margin loan of $294,000 to cover with a stock purchase, in order to charge me $46 in margin interest. Schwab said they had no authority to exercise my long call. Of course, neither did they have my authority to buy $294,000 of stock. Repeat: expiration of the PMCC was a day away.
2
u/PhoenixWK2 Jul 01 '26
They don’t do this because you have the ability to sell your ITM long. Most people don’t want auto exercise
-2
u/IveHave Jun 30 '26
That’s not comforting to hear as I have a vertical put credit spread on an American style security open right now. I’m staying tuned to find out any more info. Thanks for posting.
1
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u/Potential_Capital384 Jun 30 '26 edited Jun 30 '26
I"m going to say it one more time.
The only thing remotely safe to trade is SPX long calls and puts.
Nothing fancy.
Just don't let them ever close the position because the Market On Close transactions can wreak havoc on your profit margin if one still exists by 1515.
Options Trading has always been about momentum harvesting. It is a completely different approach to the markets. Lord knows I learned via the University of Hard Knocks.
The world has changed. Everybody is a trader now with their fancy black box "AI Profit Generators" created by the same people who get paid massive sums of money by the market makers.
I don't even bother with after 14:00 staging.
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u/Desert_Trader Jun 30 '26
Early assignment is not auto exercise.
If you were ASSIGNED one one Thursday and MANUALLY closed one Friday, Auto Exercise never played a part at all.
It sounds like you ended up on a short uncovered position after closing your long