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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: Allen Furlan who wrote (3292)1/20/2002 6:21:21 PM
From: Dan Duchardt  Read Replies (2) of 5205
 
Allen,

I can only speculate about some of this, but I think the "same day" thing might be permitted. After all, assignments at expiration usually do not show up in my accounts until the close of the next market day. Many cash accounts are administered under an "end of day" accounting scheme, so doing what needs to be done so that a purchase and sale can be effected on the same day may be permitted. Even so, to avoid being short, or making the purchase using the brokers funds instead of your own might require that you have sufficient cash or equities that could be sold to raise cash in your account to meet assignment. I would not be at all surprised if that restriction were in place. Even if it is, the idea of doing the spreads with cash in reserve is attractive from a risk management standpoint.

Beyond that, I'm not sure if a broker has any discretion in the manner it distributes assignment to its clients. It is my understanding that the Options Clearing Corporation randomly assigns exercised contracts to brokers, and that brokers in turn assign those exercised contracts to clients. It is conceivable that a broker could protect IRA accounts from early assignment, but I have no idea if they are constrained from doing that. Someone who knows a lot more about the clearing process than I (hopefully the brokers listed) might have a handle on all of this.

It is an important issue, and I would certainly want a clear understanding before getting involved. Thanks for bringing it up.

Dan
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