Market Movements

^{*Weekly Return is calculated as market open of the previous Wednesday, to market close this Tuesday (yesterday); Current Level is Tuesday’s (yesterday’s) close.}

Weekly Rollout

Markets are shaking off their June jitters and pushing toward record highs, with the S&P and Nasdaq eyeing new peaks. The Fed kept rates steady last week, opting to play wait-and-see as inflation clouds gather and geopolitical storms (temporarily) ease. Tesla helped juice the rally with a classic Muskian promise—your car might moonlight as a robotaxi while you sleep. Investors sent TSLA flying, because who needs earnings when you have autopilot revenue projections?

Meanwhile, a ceasefire between Iran and Israel gave markets a short breather, but don’t get too comfy. The 90-day tariff truce is almost up, meaning trade tensions are about to jump back to center stage. Inflation, already a hot topic, could get a fresh boost if the next round of tariffs hits consumer goods. That leaves the Fed in a tight spot. Does Jerome Powell cut rates and risk increasing prices, or hold and pray global uncertainty doesn’t choke off growth? Either way, investors should buckle up—and stick around. We’ve got you covered.

“Good-To-Know’s”

If you’re selling American-style options—which is more than likely the case—you need to be ready for assignment at any time. Early assignment usually happens when the option is deep in the money or when there’s an upcoming dividend the buyer wants to capture (especially with calls).

We’ll cover this more later in this edition, but know that as a seller, it’s important to know which type you’re trading (European vs American), monitor how far In-The-Money (ITM) it is, track how liquid the option is, and keep an eye on dividend dates. Those are the moments where early assignment tends to show up, so be prepared.

Quote(s) I Like

Thought Throttle

Risk is what you are paid for in finance. That’s the deal.

And when it comes to selling options, assignment risk is the price of admission. It is one of the risks you are exposed to when you sell both a cash-secured put and a covered call. The moment you sell the option, you’re agreeing to the associated obligation.

But here is the thing—what if the risk wasn’t something to fear? Or better yet, what if you could structure your trades so that assignment would be welcome. Ideally, both outcomes, assignment and expiry, would be acceptable.

First, we need to understand the basic options selling strategies:

Cash-Secured Puts

When selling a Cash-Secured Put (CSP), you sell a put option and set aside enough cash to buy the stock if assigned. If the stock stays above the strike price, you keep the premium. If it drops below, you buy the stock at the strike price and keep the premium received.

You get paid to take on the obligation to buy the stock at a lower price. If the stock drops, you buy it, but you were okay with that anyway.

Covered Calls

When selling a Covered Call (CC), you sell a call option against stock you already own. If the stock stays below the strike, you keep both your shares and the premium. If it rises above, your shares get called away at the strike price, and you lock in a gain plus the premium.

You get paid to take on the obligation to sell a stock you already own at a higher price. If it goes up and gets sold, you could still have made money, depending on your purchase price.

What Do We Do With the Assignment Risk?

Assignment risk becomes more acceptable—or even welcome—when the underlying stock is one you’re happy to own. That’s why fundamental selection matters. If you’re selling puts, choose companies you wouldn’t mind holding long-term. If you’re selling covered calls, make sure you’d be fine parting with your shares at the strike price.

For more information on how to select companies for CSPs, check out this previous edition:

For information on selling Covered Calls vs Selling shares outright, check out this previous edition:

Even if you’re comfortable with assignment, there still may be times when you want to avoid or delay assignment. These could include situations like when earnings are around the corner, you’re temporarily bearish/bullish, you'd rather not tie up your capital just yet, etc. That’s where rolling comes in.

To roll an option, you close your current position and open a new one, usually with a later expiration, a different strike, or both. For example, if you're short a put that's nearing expiration and likely to be assigned, you could buy it back and sell a new put further out in time. The goal is to extend the trade, manage risk, or improve your position, ideally collecting a net credit in the process.

While you can defer assignment by rolling the option, assignment risk shouldn’t be something to fear. It should be something to understand, prepare for, and even use to your advantage. When you structure your trades intentionally, with the right stocks and clear expectations, assignment becomes another path to profit.

Whether you choose to welcome it or roll away from it, the key is staying informed and in control. We’ll keep diving deeper into these mechanics every week, so stay tuned and keep throttling that theta.

Trade Mechanics

Cash-Secured Put

Let’s use Hims & Hers (HIMS) as our example. Say you’re bullish on the company’s long-term potential—you like its strong brand presence, direct-to-consumer model, expanding product lineup, etc. But, rather than buying it outright at the current price of $43.10, you’d prefer to enter at a discount.

You could sell the following cash-secured put with a $40 strike price, expiring July 25, 2025, for a premium of $2.74 per share.

If you’re looking to acquire the stock at a better price, a $40 strike offers a solid entry point. On the other hand, if your priority is collecting income without owning the shares, you could have opted for a lower strike with less assignment risk, though there would also be less premium.

In our case, assume we commit to selling the $40 put for $274 total ($2.74 × 100 shares). If HIMS closes below $40 by expiration, we’d be assigned 100 shares at that price. This would result in us buying a stock we already like at a discount, while keeping the premium. Our adjusted cost basis would be $37.26 ($40 - $2.74) per share.

If the stock stays above $40, the option expires worthless, and we simply pocket the $274 in premium, with no shares assigned. To evaluate the return, we divide the premium received by the capital at risk. Using $3,726 as our at-risk capital, this comes out to an 8.02% return over a month, or about 153% annualized—not bad for a trade where we’d be happy with either outcome.

A Note

While the annualized return of 153% may seem impressive, it is important to remember that such returns are associated with a higher degree of risk and represent potential, not guaranteed, performance. If assigned, all the usual risks of stock ownership still apply once you own the shares, including market volatility and potential loss of principal.

Additionally, when selling CSPs, there is a possibility that the stock may never dip below the strike price, meaning the option could expire without being assigned, and you might miss out on potential gains you could have realized if you had simply purchased the stock outright.

This is for educational purposes only—not a trade recommendation. Remember to always do your own due diligence and consult a financial advisor before making investment decisions.

Throttle Q&A

What is Pin Risk?

Pin risk occurs when the underlying closes exactly at or very near the option's strike price at expiration. When this happens, it creates uncertainty for both the option seller and buyer, as they won’t know for sure if the option will be assigned or expire worthless until the market closes and final settlements are made.

This becomes a further risk if you branch out to other multi-leg strategies, like vertical spreads. If you are unaware of what vertical spreads are, check out this previous edition we wrote. Know that if you are trading vertical spreads, you need to further research pin risk, or the risk of the uncertainty associated with assignment, before entering a trade.

Know your risks.

What Triggers Early Assignment?

Early assignment isn’t typical, but when it happens, it’s usually for a reason, and understanding those triggers can help you avoid surprises.

One common cause is when an option becomes deep ITM. At that point, there’s very little extrinsic (time) value left, so the option holder may choose to exercise early to lock in the intrinsic value. This is especially likely when the remaining premium isn’t worth the risk of holding the option or dealing with low liquidity and wide bid-ask spreads. Instead of trying to sell the option in the market, the holder may simply exercise it to capture the built-in value directly.

Another major trigger is upcoming dividends, particularly for call options. If a call is ITM and a dividend is approaching, the buyer might exercise early to capture the dividend payout, usually involving the buyer exercising the day before the ex-dividend date. This can catch covered call sellers off guard if they’re not watching the calendar.

Remember, early assignment can only happen with American-style options, which allow exercise at any time before expiration. European-style options don’t carry that risk, as they can only be exercised at expiration.

Tips When Rolling Options

As mentioned in the Thought Throttle section above, rolling lets you avoid or delay assignment by closing your current option and opening a new one with a different strike or expiration. Here are some general best practices:

• Start Early - Begin looking to roll a few days before expiration. Waiting too long means less premium and wider spreads.

• Roll Out and Down (or Up):

  For CSPs - Roll down if the stock drops and you still want to avoid assignment.

  For CCs - Roll up if the stock is rising and you want to keep your shares.

  Note: This is for short-term special circumstances; If you want to avoid assignment totally, best to get out of the trade.

• Aim for a Credit - Ideally, roll for a net credit. Rolling for a debit should be rare and strategic.

• Watch the Calendar - Avoid assignment risk around earnings or ex-div dates by rolling before they hit.

• Consider IV - Elevated implied volatility means richer premiums, and can vary the rolling opportunities. Conversely, lower IV means less premium.

• Know When to Exit - If rolling doesn’t improve the setup, take the loss or profit and move on—view the rolling of the option as an independent trade. Would you enter this trade if you were coming into it fresh?

Got any questions or comments? Feel free to reply to this email—we’d love to hear from you!

If you found this helpful, feel free to share or forward this email to anyone who might be interested! We appreciate your support.

Disclaimer

The information provided in this newsletter is sourced from reliable channels; however, we cannot guarantee its accuracy. The opinions expressed in this newsletter are solely those of the editorial team, contributors, or third-party sources and may change without prior notice. These views do not necessarily reflect those of the firm as a whole. The content may become outdated, and there is no obligation to update it.

This newsletter is for informational purposes only and does not constitute personal investment advice. It is not intended to address your specific financial situation and should not be construed as legal, tax, or accounting advice, or as a recommendation to buy, sell, or hold any securities. No recommendation is made regarding the suitability of any investment for a particular individual or group. Past performance is not indicative of future results.

We strongly advise you to consult with a financial advisor before making any investment decisions, including determining whether any proposed investment aligns with your personal financial needs.