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The Mentality of Taking Assignment on Short Puts

A favorite strategy of mine is short puts, both cash secured and naked. When trading cash secured puts (CSPs), assignment should be part of the management plan (it can be a tremendous tool). It's common to see newer CSP sellers saying "they're okay with assignment at their strike", I sure said it all the time myself. It was part of a self-assuring plan that I had a "plan" in the "worst case scenario". I liked the stock and if I got assigned it was at a discount to current price, surely I would like the lower basis. The problem?


The first time I had an option fall in the money, and the underlying dropped another 15% below my strike, I suddenly wasn't as comfortable with assignment. My "discounted" basis now turned into a premium. I panicked and closed the trade at a loss. Horrible execution.

Many think they are "okay" with assignment at their strike until the underlying dive bombs below it. Ever since that scenario, I was sure to include large drop scenarios in planning. This included truly exploring how I'd feel in the scenario (exposing myself to the scenario before it happens to temper my emotional response and enable rational reactions). I also included different evaluation stops along the way down. Why was it falling? Are there changes in my long-term hypothesis? Am I still okay with assignment. etc.


This is also a significant reason why I like to trade index ETFs at this point. Taking assignment, even during a 50%+ drawdown is more palatable against a long-term trade plan.

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