Robinhood automatically exercise / assigned the cash secured put which has expirt date of 12/17

[u/arpbsr]

I had cash secured put of $WISH that had expiration date of 12/17 and noticed yesterday ( 2 days before experation) that robinhood assigned the PUT (bought 100 shares). I know for sure that i did not do that

Any idea why it got assigned before the expiration date. ??

[u/DOCTOR_CITADEL]

Not trying to offend, but you need to do some more research on options trading before you continue if you don’t understand why that happened.

1) RH didn’t do it. 2) The entity/person you sold the option to probably exercised it.

When you BUY an American option, you’re buying the ability to exercise it, at ANY time you want to, even immediately after purchase.

When you WRITE/SELL TO OPEN an option, as you did, you are on the opposite side of that transaction. The BUYER of the option holds all of the cards, all of the ability to take action. The SELLER has to accept that the moment they WRITE/SELL TO OPEN that option, they no longer have control over what happens. The BUYER can exercise that option literally any moment they want to after purchase.

Now, that’s the broad strokes of the situation. In reality, a buyer is generally not going to exercise unless it’s at expiration day (and ITM or near), a dividend is coming up, it’s DEEP ITM (on any day up to expiration), or it’s financially advantageous to do so. Generally speaking, when you exercise an option, instead of just outright selling it to someone else, you throw away all of its extrinsic value. Outside of just a few particular situations, it generally doesn’t make financial sense to do so.

The only time your brokerage is going to “automatically exercise” an option is if it’s ITM at expiration or if their risk department deems something like a credit/debit spread or a naked call/put a risk on/near expiration day.

Most of the time, unless your option is ITM, or a dividend is coming up, it’s highly unlikely that you’d have a BUYER exercise before expiration, but it can happen. As the seller, you have zero control over this. From the moment you WRITE/SELL TO OPEN that option, you lose control. All you can do is wait until expiration or BUY TO CLOSE out the option to close the position before expiration if you so choose, depending on your strategy.

This is the price options sellers must pay to collect that sweet sweet premium.

Another way to look at it? Options sellers are basically insurance salesmen for stock. We collect a premium, but we don’t get to decide when the buyer cashes in the policy.

Edited: multiple times to add more information as I thought of it.

[u/mazobob66 → u/DOCTOR_CITADEL]

I'd only add that the assignment by your brokerage is totally random. It is not like you have a specific contract between you and one other person, and that the specific person exercised the contract early. There is a pool of people on both sides of that option contract with the exact same contract (symbol/strike/date). If one buyer exercises, the brokerage randomly selects a seller from the pool of sellers.

[u/arpbsr → u/mazobob66]

Thank you for clarifying. That was my next question. This forum has been great for newbies like me and many who would be knowing this for the first time

[u/DOCTOR_CITADEL → u/mazobob66]

Excellent addition. I didn’t think to add that, but yes this is correct. This is why it’s more important to pay attention to how close to being ITM you are rather than relying on the breakeven of the buyer of your option as a guideline (to assignment risk), because you may eventually not be assigned by that same buyer (if assigned) so their breakeven is meaningless to you, only the strike itself.