Date: 12/21/2022
Author: Chris Hood
A common concern among options traders is assignment risk.
If you are unfamiliar with assignment, let’s consider how it applies to trading.
As I explained to a subscriber last week, whenever you sell an option, you are giving someone else the right to force you to provide shares at the strike price on or before expiration.
Assume you’ve sold a SPY 375 put as part of a credit spread for this Friday’s expiration.
If SPY suddenly gapped up to 395, a full 20 dollars out of the money, you may wake up holding 100 shares of the ETF rather than the put.
This may have happened to you.
Dealing with assignment is a headache. It ties up a massive amount of capital and, if mismanaged, can lead to losses.
So how do you avoid this risk?
Corey Snyder has already closed 250 winners on this stock in the last 12 months…
And on December 20th, during the Dragnet Wealth Summit – he’s going to share the ticker with you, plus how you could apply this strategy to boost your income by an extra $1,000 a week.
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Obviously, you could never sell options.
This approach completely eliminates assignment risk but will hamper your profits. Selling credit spreads and iron condors can be some of the most consistent income-generating trades.
So I don’t recommend you focus exclusively on buying strategies.
If you enjoy trading the S&P 500, consider index options rather than ETFs.
SPY is an ETF – a security that tracks the SPX index through the price of its shares. Like an individual stock, you can trade the shares or hold them as an investment.
However, you can also trade options directly on the index.
SPX and its diminutive, lower-priced cousin XSP allow options trades completely without assignment risk. These are known as cash-settled or European-style options.
SPX and XSP have no shares.
If you have a credit spread that sits at a 100% loss and allow it to expire, the loss will be deducted from your account as cash.
The same is true for your winners.
Most of the index options are highly liquid and, despite their high price, make excellent vehicles for defined risk options strategies like spreads.
So the next time you decide to trade SPY, give these a try instead.
It’s easy to get into and out of trades when you want, and you’ll never be worried about assignments.
Cheers,
Chris Hood
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