Assignment risk in option writing

I have a few questions and need clarification for the same. I tried to get it first from toll free number 080 4040 2020, but they sent me here. So here it is…
( all questions are from option writers perspective & for equity section -“american settlement”)

  1. What if my naked short put option gets exercised and i don’t have enough capital to cover it? Does my balance go negative & does stock show up in my account next day?

2.When should i expect margin call, is it before assignment or after assignment? How many days do i have left to pour capital in account after receiving margin call?

3.How could i get out of this position without any additional capital?

4.Same questions but for naked short call option?

5.If I had credit spreads in the questions asked above would it affect outcomes differently?

6.Does assignment happen very often? How likely to get assigned if I am short OTM?

@nithin @Karthik @Abid_Hassan

1 Like

@Abid_Hassan …i guess he can help better…

All options are cash settled, so there is no question of stocks showing up in your account the next day. Also, the Risk management team will square off your position if the margins goes below SPAN requirements

You need to ensure you have enough margins. If the position makes losses to the extent of eroding all of exposure margins, then you will get a call/alert from broker.

You have to square off the position. This is the only way.

Credit spreads help you in terms of reduction in margins deployed for the trade.

Everything is cash settled.