Hi Mark:
Second, you write that you are not comfortable with being assigned an exercise notice – and you shouldn’t be. [NOTE: This is a discussion about being assigned at expiration.That’s an entirely different situation than being assigned early.]
When assigned, you must hold the stock until Monday because you are not officially assigned until Saturday and are not informed of the assignment before Sunday (online, if your brokers offers that service) or Monday morning before the market opens.The stock price may be far different when the market opens Monday.Why would you want to take that risk?And to make it just a bit worse, you own stock for three days and must pay interest on the cash used to buy the shares.
To prevent being assigned, you bought the options you sold earlier.One word of warning that does not apply to the case you just described:if you do receive an assignment notice before you buy back those options, it’s too late.The assignment cannot be undone.
Ramifications?
To buy shares, you must have sufficient cash, or assets, in your account.If you don’t, you will receive a margin call.As you stated, you can eliminate that margin call by simply selling the shares.But, that’s not the ‘right’ way to meet a margin call.The broker may let you get away with meeting a margin call by eliminating the offending position, but in reality, you are supposed to meet the call by depositing cash, or other assets, such as stock, into your account.
There are no real ‘ramifications’ other than the risk I mentioned earlier.But, it’s really a good idea not to get margin calls unless you have the ability to immediately wire funds to your broker.But, it’s really best to avoid margin calls. Period.Thus, your decision to repurchase the short put option was a good one.
But – the timing of that purchase is up to you.The form letter from from the broker was meant to alert you to the situation, not to tell you to buy in your shorts NOW.