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Strategies & Market Trends : Options
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To: Dr. Id who wrote (7783)5/11/2000 12:36:00 PM
From: PAL   of 8096
 
There are at least two reasons for early assignment of a naked put:

a. the option is so DITM and close to expriration such that the extrinsic value is negligible, hence the holder likes the sure profit than waiting for next week. he/she probably expects a rally after may 16 which will reduce the value of the option

b. tax reason. if he/she sells back the option in market, all his/her gain is ordinary income (short tem gains). maybe he/she has held the gmst stock for more than one year, and the cost of his/her protective put is incorporated into the stock transaction making it long term gain.

I am sure that the majority of option players never even consider if their short option positions would be closed by the buyer. Yet are are rare case when that situation arises.

Good look on your GMST. Maybe after May 16 the market will get a new breadth of fresh air.

Paul
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