Bullshit Free Guide to Iron Condors - Options trading IQ

WHAT ABOUT THE RISK OF EARLY
ASSIGNMENT?
Early Assignment is only an issue for American style options. Stocks and ETF’s are American style, while indexes are European style. If you are trading Iron
Condors and credit spreads on the indexes (RUT, SPX, NDX and MNX), you don’t even need to worry about it. For those you trade the ETF’s (IWM, SPY and QQQ)
there is a risk of early assignment but the risk is incredibly low and almost not worth worrying about.
The main reason to exercise an option early is to receive the dividend, and the option would have to be deep in‐the‐money to do that. The other reason might
be if a large institution had a very large position, it might be cheaper to exercise early than to sell the position in the market and pay the bid / ask spread.
For puts options, the main reason to exercise early would be in the case of a company going bankrupt. In that case, you are holding an option to sell the stock
for the exercise price, and there is absolutely nothing gained by waiting until expiration to exercise it.
Realistically, neither of these scenarios are likely, particularly if you are trading the ETF’s as SPY cannot go bankrupt (unless all the stocks in the ETF go bankrupt
and geez I hope that never happens…)
If you are trading the American style options, you would be adjusting your positions before the options go in‐the‐money so again, there is very little risk of early
assignment.
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