Selling options involves assignment risk. For a lot of traders, that can be a scary proposition.
If you manage a portfolio with many different positions and expiration dates, it can be challenging to track positions that are near-the-money as expiration approaches.
Don't worry, the bots have you covered. Monitor automations not only manage your positions, but they can also notify you of assignment risk.
Monitor automations don’t have to end with an action. Monitors can also use notifications to alert you if certain criteria is met so you can be aware of your position’s status. You can use a combination of decision recipes to alert you by referencing days until expiration, the underlying symbol’s price relative to an option’s short strike price, and an option leg’s delta.
You could of course exit the position with a close position action if any or all statements are true.
For example, the monitor automation in this tutorial begins with a loop positions action to pull in data for all open put credit spreads.
The first decision recipe checks if the position expires in less than seven days. If the answer is yes, the bot will then check if the underlying symbol’s price is below the position’s short put strike. A final decision recipe is added to check if the short put’s delta is less than -0.75.
A notification can then be sent to alert you that the short option is in-the-money and potentially at risk of assignment. (Remember, assignment is completely random and can occur at any time and at any price before expiration).
We know how stressful it can be when options expiration looms. That’s why Option Alpha allows you to create custom notifications in automations so you can be notified automatically of potential situations, such as early assignment risk.
This is another great tool to add to your portfolio, and you can be stress-free knowing the bots are keeping an eye on your positions.
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In this video, I want to show you how to build out a monitor automation that incorporates some really cool decisions that can help you get notified for early assignment risk.
Now, remember, assignment is against. They all completely random. So you'll want to tweak any of these variables or any of these set up to make it more specific to how you trade and strategies you use, and how you might want to get notified.
To start off, we're going to use this demo monitor automation, and we're going to start this by using a position loop. Position loops are really great because they allow us to loop through all positions that we have inside of the bot and individually make different decisions and take different actions for each position.
The next thing that we're going to do is we're going to add some decisions. We're going to have the bot referenced some of the decision criteria that we want for that particular position that we're looping through at the current time.
Maybe the first decision that we want to make is something around the position expiring in a certain amount of time. This might help us get an understanding or a feel of whether the position is going to be at risk of assignment or not in our portfolio.
So we can use this position level recipe for the position expires in a certain period of time. We simply just connect this position input to whatever position the bot is looping through at the time, then we go through all of the different prompts like checking to see if the position expires in less than a certain number of days.
We can use calendar days or market days. However you want to set this up is completely up to you.
Let's go ahead and set this up to check and see if the position expires in less than three market days. Then we're going to go ahead and save this to our automation editor.
But expiring in less than three market days is not enough to tell us that we're at a higher risk of assignment. And to notify us that we might want to do something with the position if we want to manually make an adjustment or hedge the position inside of the bots.
Again, you could do this always automated as well if you wanted to, by setting up your automations and your monitors a little bit differently. But in this video, we're going to show you how to simply just get notified of potential early assignment risk.
Now, being inside three days to expiration is definitely something that would lead to potential early assignment. We can also have the bot make additional decision that can check other variables.
One of the new recipes that we have inside of the platform in a position section of recipes is this recipe here which has some expanded leg properties.
We can select this recipe here, and we can again connect this to whatever position we're looping through, and then we can select different legs of different positions.
So let's say, for example, that we're trading short put spread positions. Well, we could have the bot check and see if the short put leg has some particular leg properties that would lead us to believe that we are at a higher chance of assignment than not.
So, we can specify the short put leg of whatever position we're looking at, and then we could go down to something like intrinsic value as one of the position variables or extrinsic value, or the delta price, or we can even do a new recipe called chance of being in the money.
So chance of being in the money as a leg properties going to evaluate the probability or the chance that that particular leg, the short put leg, chance of being in the money is greater less than some value that you set.
Again, it's a really fun and useful way to automate the process of monitoring positions that might be at risk of early assignment.
So we could say that the short put spread or the short put leg chance of being in the money is greater than, say, 60%. And if we wanted to do this, we could just simply hit "Save," and then add this to our automation editor.
Now it's going to repeat through each of our positions and, again, we're using as an example in this video, short put spreads, check and see if the position expires in less than three market days, and check and see if the short put legs chance of being in the money is greater than 60%. And if it is, we could then take different actions or just get notified that we're at risk of early assignment.
We can also add some additional decisions to this individual decision block like we want to know if the short put legs chance of being in the money is greater than 60%, and we want to see if the position is currently being challenged by the underlying security. So we go down here to this recipe that the position's underlying price is currently above or below one of our strikes.
We again connect the position to whatever position the bot is looping through. And check and see if the underlying price is currently below our short put strike.
Again, if the underlying price is below our short put strike, that would clearly suggest that we're at a higher chance of being assigned early on this position because the position is already in the money.
This first recipe here just evaluates the chance of being in the money at expiration, but when we combine this with the additional logic here to check and see if the position is actually being challenged and the underlying price is below our short put strike, we get even more confidence to suggest that we might be assigned early on this position.
So once we go ahead and save this, that updates are new logic inside of our automation editor, and again we can simply tell the bot to take some sort of action. We can tell the bot to automatically close the position if we want, or we can send ourselves an in-app notification.
We can say something like "Early assignment risk" on this position. That would then send us a notification right here inside of the Option Alpha platform to let us know that whatever position that was just looping through is at early assignment risk, and we might want to do something about it.
Again, this is if you didn't want the bot to automatically take some sort of action like close the position or hedge or roll the position, which you can do inside of your automations.
So, this is a really cool and useful way to monitor your positions. You can do this for any number of use cases and do this for different types of strategies and use different decisions and recipes combined in different orders. However you feel is best to monitor the likelihood of being assigned on your position.
This is just one way that you can do it with your bots and automations.