The Option Traders Hedge Fund [PDF]

Summary
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The Option Traders Hedge Fund – Book

I want to discuss something somewhat basic that seems to hound me constantly: retail traders asking me if I am worried about being assigned on a short put position. The very neophyte traders will sometimes go so far as to ask if I am worried about call assignment.

I am going to give the short answer on the assignment, and then I am going to prove it. Then I will discuss when it is okay to consider assignments. Very quickly, as traders being assigned should be one of the last things we worry about. The reason being, it isn’t something that happens very often.

The circumstances when a trader will be assigned are actually somewhat rare. This is especially true now with interest rates so low. Here is why: I am going to start with this statement, and it was one of the first things I learned as a trader. A put is a call and a call is a put. Almost every trade pro traders make is converting calls to puts and vice versa.

For instance, the protective put: If one charts the graph of a protective put (long put + long stock), what does the trader notice? It looks exactly like a call. The position has a limited loss and unlimited upside.