assignment short call

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Understanding assignment risk in Level 3 and 4 options strategies

E*TRADE from Morgan Stanley

With all options strategies that contain a short option position, an investor or trader needs to keep in mind the consequences of having that option assigned , either at expiration or early (i.e., prior to expiration). Remember that, in principle, with American-style options a short position can be assigned to you at any time. On this page, we’ll run through the results and possible responses for various scenarios where a trader may be left with a short position following an assignment.

Before we look at specifics, here’s an important note about risk related to out-of-the-money options: Normally, you would not receive an assignment on an option that expires out of the money. However, even if a short position appears to be out of the money, it might still be assigned to you if the stock were to move against you just prior to expiration or in extended aftermarket or weekend trading hours. The only way to eliminate this risk is to buy-to-close the short option.

Short (naked) calls

Credit call spreads

Credit put spreads, debit call spreads, debit put spreads.

When all legs are in-the-money or all are out-of-the-money at expiration

Another important note : In any case where you close out an options position, the standard contract fee (commission) will be charged unless the trade qualifies for the E*TRADE Dime Buyback Program . There is no contract fee or commission when an option is assigned to you.

Short (naked) call

If you experience an early assignment.

An early assignment is most likely to happen if the call option is deep in the money and the stock’s ex-dividend date is close to the option expiration date.

If your account does not hold the shares needed to cover the obligation, an early assignment would create a short stock position in your account. This may incur borrowing fees and make you responsible for any dividend payments.

Also note that if you hold a short call on a stock that has a dividend payment coming in the near future, you may be responsible for paying the dividend even if you close the position before it expires.

An early assignment generally happens when the put option is deep in the money and the underlying stock does not have an ex-dividend date between the current time and the expiration of the option.

Short call + long call

(The same principles apply to both two-leg and four-leg strategies)

This would leave your account short the shares you’ve been assigned, but the risk of the position would not change . The long call still functions to cover the short share position. Typically, you would buy shares to cover the short and simultaneously sell the long leg of the spread.

Pay attention to short in-the-money call legs on the day prior to the stock’s ex-dividend date, because an assignment that evening would put you in a short stock position where you are responsible for paying the dividend. If there’s a risk of early assignment, consider closing the spread.

Short put + long put

Early assignment would leave your account long the shares you’ve been assigned. If your account does not have enough buying power to purchase the shares when they are assigned, this may create a Fed call in your account.

However, the long put still functions to cover the position because it gives you the right to sell shares at the long put strike price. Typically, you would sell the shares in the market and close out the long put simultaneously.

Here's a call example

Let’s say that you’re short a 100 call and long a 110 call on XYZ stock; both legs are in-the-money.
You receive an assignment notification on your short 100 call, meaning you sell 100 shares of XYZ stock at 100. Now, you have $10,000 in short stock proceeds, your account is short 100 shares of stock, and you still hold the long 110 call.
Exercise your long 110 call, which would cover the short stock position in your account.
Or, buy 100 shares of XYZ stock (to cover your short stock position) and sell to close the long 110 call.

Here's a put example:

Let’s say that you’re short a 105 put and long a 95 put on XYZ stock; the short leg is in-the-money.
You receive an assignment notification on your short 105 put, meaning you buy 100 shares of XYZ stock at 105. Now, your account has been debited $10,500 for the stock purchase, you hold 100 shares of stock, and you still hold the long 95 put.
The debit in your account may be subject to margin charges or even a Fed call, but your risk profile has not changed.
You can sell to close 100 shares of stock and sell to close the long 95 put.

Long call + short call

Debit spreads have the same early assignment risk as credit spreads only if the short leg is in-the-money.

An early assignment would leave your account short the shares you’ve been assigned, but the risk of the position would not change . The long call still functions to cover the short share position. Typically, you would buy shares to cover the short share position and simultaneously sell the remaining long leg of the spread.

Long put + short put

An early assignment would leave your account long the shares you’ve been assigned. If your account does not have enough buying power to purchase the shares when they are assigned, this may create a Fed call in your account.

All spreads that have a short leg

(when all legs are in-the-money or all are out-of-the-money)

Pay attention to short in-the-money call legs on the day prior to the stock’s ex-dividend date because an assignment that evening would put you in a short stock position where you are responsible for paying the dividend. If there’s a risk of early assignment, consider closing the spread.

However, the long put still functions to cover the long stock position because it gives you the right to sell shares at the long put strike price. Typically, you would sell the shares in the market and close out the long put simultaneously.

The Risks of Options Assignment

Any trader holding a short option position should understand the risks of early assignment. An early assignment occurs when a trader is forced to buy or sell stock when the short option is exercised by the long option holder. Understanding how assignment works can help a trader take steps to reduce their potential losses.

Understanding the basics of assignment

An option gives the owner the right but not the obligation to buy or sell stock at a set price. An assignment forces the short options seller to take action. Here are the main actions that can result from an assignment notice:

Short call assignment: The option seller must sell shares of the underlying stock at the strike price.
Short put assignment: The option seller must buy shares of the underlying stock at the strike price.

For traders with long options positions, it's possible to choose to exercise the option, buying or selling according to the contract before it expires. With a long call exercise, shares of the underlying stock are bought at the strike price while a long put exercise results in selling shares of the underlying stock at the strike price.

When a trader might get assigned

There are two components to the price of an option: intrinsic 1 and extrinsic 2 value. In the case of exercising an in-the-money 3 (ITM) long call, a trader would buy the stock at the strike price, which is lower than its prevailing price. In the case of a long put that isn't being used as a hedge for a long stock position, the trader shorts the stock for a price higher than its prevailing price. A trader only captures an ITM option's intrinsic value if they sell the stock (after exercising a long call) or buy the stock (after exercising a long put) immediately upon exercise.

Without taking these actions, a trader takes on the risks associated with holding a long or short stock position. The question of whether a short option might be assigned depends on if there's a perceived benefit to a trader exercising a long option that another trader has short. One way to attempt to gauge if an option could be potentially assigned is to consider the associated dividend. An options seller might be more likely to get assigned on a short call for an upcoming ex-dividend if its time value is less than the dividend. It's more likely to get assigned holding a short put if the time value has mostly decayed or if the put is deep ITM and close to expiration with a wide bid/ask spread on the stock.

It's possible to view this information on the Trade page of the thinkorswim ® trading platform. Review past dividends, the price of the short call, and the price of the put at the call's strike price. While past performance cannot be relied upon to continue, this information can help a trader determine whether assignment is more or less likely.

Reducing the risk associated with assignment

If a trader has a covered call that's ITM and it's assigned, the trader will deliver the long stock out of their account to cover the assignment.

A trader with a call vertical spread 4 where both options are ITM and the ex-dividend date is approaching may want to exercise the long option component before the ex-dividend date to have long stock to deliver against the potential assignment of the short call. The trader could also close the ITM call vertical spread before the ex-dividend date. It might be cheaper to pay the fees to close the trade.

Another scenario is a call vertical spread where the ITM option is short and the out-of-the-money (OTM) option is long. In this case, the trader may consider closing the position or rolling it to a further expiration before the ex-dividend date. This move can possibly help the trader avoid having short stock on the ex-dividend date and being liable for the dividend.

Depending on the situation, a trader long an ITM call might decide it's better to close the trade ahead of the ex-dividend date. On the ex-dividend date, the price of the stock drops by the amount of the dividend. The drop in the stock price offsets what a trader would've earned on the dividend and there would still be fees on top of the price of the put.

Assess the risk

When an option is converted to stock through exercise or assignment, the position's risk profile changes. This change could increase the margin requirements, or subject a trader to a margin call, 5 or both. This can happen at or before expiration during early assignment. The exercise of a long option position can be more likely to trigger a margin call since naked short option trades typically carry substantial margin requirements.

Even with early exercise, a trader can still be assigned on a short option any time prior to the option's expiration.

1 The intrinsic value of an options contract is determined based on whether it's in the money if it were to be exercised immediately. It is a measure of the strike price as compared to the underlying security's market price. For a call option, the strike price should be lower than the underlying's market price to have intrinsic value. For a put option the strike price should be higher than underlying's market price to have intrinsic value.

2 The extrinsic value of an options contract is determined by factors other than the price of the underlying security, such as the dividend rate of the underlying, time remaining on the contract, and the volatility of the underlying. Sometimes it's referred to as the time value or premium value.

3 Describes an option with intrinsic value (not just time value). A call option is in the money (ITM) if the underlying asset's price is above the strike price. A put option is ITM if the underlying asset's price is below the strike price. For calls, it's any strike lower than the price of the underlying asset. For puts, it's any strike that's higher.

4 The simultaneous purchase of one call option and sale of another call option at a different strike price, in the same underlying, in the same expiration month.

5 A margin call is issued when the account value drops below the maintenance requirements on a security or securities due to a drop in the market value of a security or when buying power is exceeded. Margin calls may be met by depositing funds, selling stock, or depositing securities. A broker may forcibly liquidate all or part of the account without prior notice, regardless of intent to satisfy a margin call, in the interests of both parties.

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What Is a Short Call?

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Strategy & Education

What Is a Short Call in Options Trading, and How Does It Work?

Gordon Scott has been an active investor and technical analyst or 20+ years. He is a Chartered Market Technician (CMT).

A short call is an options position taken as a trading strategy when a trader believes that the price of the asset underlying the option will drop. Therefore, it's considered a bearish trading strategy .

Short calls have limited profit potential and the theoretical risk of unlimited loss. They're usually used only by experienced traders and investors.

Key Takeaways

A call option gives the buyer of the option the right to purchase underlying shares at the strike price before the contract expires.
When an investor sells a call option, the transaction is called a short call.
A short call requires the seller to deliver the underlying shares to the buyer if the option is exercised.
A short call is a bearish trading strategy, reflecting a bet that the security underlying the option will fall in price.
The goal of the trader who sells a call is to make money from the premium and see the option expire worthless.

A short call strategy is one of two simple ways options traders can take bearish positions. It involves selling call options , or calls. Calls give the holder of the option the right to buy the underlying security at a specified price (the strike price ) before the option contract expires.

The seller, or writer, of the call option receives the premium the buyer pays for the call. The seller must deliver the underlying shares to the call buyer if the buyer exercises the option.

The success of the short call strategy rests on the option contract expiring worthless. That way, the trader banks the profit from the premium. The expired position will be removed from their account.

For this to happen, the price of the underlying security must fall below the strike price. If it does, the buyer won't exercise the option.

If the price rises, the option will be exercised because the buyer can get the shares at the strike price and immediately sell them at the higher market price for a profit.

For the seller, there’s unlimited exposure during the length of time the option is viable. That's because the underlying security's price could rise above the strike price during this time, and keep rising. The option would be exercised at some point before expiration. Once that happens, the seller has to go into the market and buy the shares at the current price. That price could potentially be much higher than the strike price that the buyer will be paying.

A seller of a call who doesn't already own the underlying shares of an option is selling a naked short call. To limit losses, some traders will exercise a short call while owning the underlying security. This is known as a covered call . Or, alternatively, they may simply close out their naked short position, accepting a loss that's less than what they'd lose if the option were assigned (exercised).

Example of a Short Call

Say that shares of Humbucker Holdings are trading near $100 and are in a strong uptrend. However, based on a combination of fundamental and technical analyses, a trader believes that Humbucker is overvalued. They feel that, eventually, it will fall to $50 a share.

With that in mind, the trader decides to sell a call with a strike price of $110 and a premium of $1.00. They receive a net premium credit of $100 ($1.00 x 100 shares).

The price of Humbucker stock does indeed drop. The calls expire worthless and unexercised. The trader gets to enjoy the full amount of the premium as profit. The strategy worked.

However, things could instead go awry. Humbucker share prices could continue moving up rather than go down. This creates a theoretically limitless risk for the call writer.

For example, say the shares move up to $200 within a few months. The call holder exercises the option and buys the shares at the $90 dollar strike price. The shares must be delivered to the call holder. The call writer enters the market, buys 100 shares at the current market price of, it turns out, $200 per share. This is the trader's result:

Buy 100 shares at $200 per share = $20,000

Receive $90 per share from buyer = $9,000

Loss to trader is $20,000 - $9,000 = ($11,000)

Trader applies $100 premium received for a total loss of ($10,900)

Short calls can be extremely risky due to the potential for loss if they're exercised and the short call writer has to buy the shares that must be delivered.

As previously mentioned, a short call strategy is one of two basic bearish strategies involving options. The other is buying puts . Put options give the holder the right to sell a security at a certain price within a specific time frame. Going long on puts, as traders say, is also a bet that prices will fall, but the strategy works differently.

Say that our trader still believes Humbucker stock is headed for a fall. They opt to buy a put with a $90 strike price for a $1.00 premium. The trader spends $100 for the right to sell shares at $90 even if the actual market price falls to $50. Of course, if the stock does not drop below $90, the trader will have lost the premium paid for the protection.

What's a Short Call?

When investors sell a call option, the transaction is called a short call. Short is a trading term that refers to selling a security.

Why Would Someone Sell Call Options?

Investors who believe that the price of a security is going to fall might sell calls on that security simply for income. In other words, they'll profit just from the premium they received for selling the option. However, for the strategy to succeed, the option has to expire unexercised by the buyer.

What's the Risk of a Naked Short Call?

A naked short call refers to a situation where traders sell call options but don't already own the underlying securities that they would be obligated to deliver if the buyer exercises the calls. So, the risk is that the market price for the security goes up above the option strike price, the buyer exercises the option, and traders must enter the market to buy the securities for a price way above what they'll receive for them (the strike price).

U.S. Securities and Exchange Commission. " Investor Bulletin: An Introduction to Options ."

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Short Call Options Strategy (Awesome Guide w/ Examples)

Options trading 101 - the ultimate beginners guide to options.

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Today we’re going to take a detailed look at the short call options strategy.

This is not a strategy that is recommended for beginners due to the unlimited loss potential, so don’t try this strategy until you have at least 12 months experience.

Let’s get started.

What Are Short Call Options?

Maximum loss, maximum gain, breakeven price, payoff diagram, risk of early assignment.

Short call options are also called naked calls due to the fact they are not covered by a position in the underlying stock.

Traders looking at this strategy would be mildly bearish, although it can be trading as an aggressive bearish position by bring the short strike closer to the stock price.

With a short call option, the trader is looking for the stock to stay flat or decline.

The trade can still profit in the case of the stock rising slightly, but that is not the preferred scenario as it could put the trade under pressure and see the trader sitting on unrealized losses and therefore faced with the difficult decision to cut losses or stay in a losing trade.

After placing a short call option trade, the trader has an obligation to sell the stock to the buyer of the option at the agreed price on or before the expiration date.

This would only occur if the call option was assigned by the buyer.

Assignment can occur at any time but is more likely when the stock price is above the strike price and there is little time value left in the call options.

If the stock price stays below the short strike for the duration of the trade, the call option will expire worthless and the option position will be removed from the seller’s account.

While this article is only focused on naked calls, selling a short call is common for investors who already own the stock and are looking to generate additional income. This strategy is known as a covered call .

The maximum loss on the trade is theoretically unlimited as the stock can continue moving higher with no limit.

For this reason, it is not a recommended strategy for beginners.

Some traders will set a stop loss at 1.5 to 2 times the premium received.

However, I’ve seen many cases where overbought stocks have rocketed higher following a positive news announcement.

Stop losses do little help in that situation as the stock blows right through the stop loss level.

The maximum gain for the strategy is limited to the premium received for selling the call option.

When calculating the percentage return, traders can take the premium received divided by the margin requirement.

This can be a little deceptive because the potential loss can be much higher than the margin requirement.

Also, if the stock moves higher, the margin requirements will increase as the position comes under pressure.

The breakeven price for a short call option strategy is the short call strike plus the premium received.

For example, if a stock is trading at $120 and the trader sells a $125 call option for a premium of $2.50, the breakeven price would be $127.50.

Keep in mind that is the breakeven price at expiry.

The trade could be in a loss position at much lower levels if the stock moves higher early in the trade.

Short calls have a similar shaped payoff diagram to a long put.

Profits are flat below the strike price with a breakeven price equal to the strike price plus the premium.

Above the breakeven price, losses accrue on a one to one basis with a move higher in the stock price.

The T+0 line in the payoff diagram below show that losses can occur at prices lower than the breakeven price on interim dates.

There is always a risk of early assignment when having a short option position in an individual stock or ETF.

You can mitigate this risk by trading Index options , but they are more expensive.

Usually early assignment only occurs on call options when there is an upcoming dividend payment and / or if there is very little time premium left.

Traders will exercise the call in order to take ownership of the stock before the ex-date and receive the dividend.

Short calls have negative delta, negative gamma, negative vega and positive theta.

As a negative delta trade, the ideal scenario for the trader is a drop in the stock price. Delta is going to be the main driver of the trade as far as the greeks are concerned.

The closer the trade is placed to the stock price, the higher the negative delta will be.

Aggressively bearish traders would place the short strike closer to the money which would provide a larger negative delta exposure and generate a higher option premium.

Less bearish traders might place the trade further away from the stock price giving them less delta exposure but also reducing the amount of premium received.

In the PG example above, the trade has a delta of -25 which is an equivalent exposure to being short 25 shares.

The delta will change as the trade progress due changes in the stock price and the other greeks.

Short calls are negative gamma which means the delta exposure will become more negative as the stock rises.

This has the effect of losses starting to “snowball” as the stock rises.

For this reason, it’s important to cut losses or hedge earlier rather than later.

The PG short call example has gamma of -3 meaning that for every $1 change in the underlying stock price, the delta will change by 3.

Vega is the greek that measures a position’s exposure to changes in implied volatility . If a position has negative vega overall, it will benefit from falling volatility.

Negative vega on a short call strategy means the position will benefit from a decrease in implied volatility after placing the trade.

If the stock stays flat and implied volatility drops, the trade will start to be in a profitable position.

The PG short call strategy has vega of -14 meaning that for every 1% change in implied volatility, the P&L on the position will change by +/- $14.

Short call options are a positive theta trade meaning that they will benefit from time passing.

This is also known as time decay .

The PG trade has theta of 4 meaning that the trade will make $4 per day from time decay with all else being equal.

It goes without saying that as a bearish trade, there is a risk that the price of the underlying will rise causing an unrealized loss, or a realized loss if we close the trade.

Some other risks associated with short call options:

ASSIGNMENT RISK

We talked about this already so won’t go into to much detail here and while this doesn’t happen often it can theoretically happen at any point during the trade. The risk is most acute when a stock trades ex-dividend.

If the stock is trading well below the sold call, the risk of assignment is very low. E.g. a trader would generally not exercise his right to buy PG at $145 when PG is trading at $138 purely to receive a $0.50 dividend.

The risk is highest if the stock is trading ex-dividend and the short call is in the money.

One way to avoid assignment risk is to trade stocks that don’t pay dividends, or trade indexes that are European style and cannot be exercised early.

However, this should not be the primary factor when determining which underlying instrument to trade.

Otherwise, think about closing your short call option before the ex-dividend date if it is in-the-money.

EXPIRATION RISK

Leading into expiration, if the stock is trading just above or just below the short call, the trader has expiration risk.

The risk here is that the trader might get assigned and then the stock makes an adverse movement before he has had a chance to cover the assignment.

In this case, the best way to avoid this risk is to simply close out the spread before expiry.

While it might be tempting to hold the spread and hope that the stock drops and stays below the short call, the risks are high that things end badly.

Sure, the trader might get lucky, but do you really want to expose your account to those risks?

VOLATILITY RISK

As mentioned on the section on the greeks, this is a negative vega strategy meaning the position benefits from a fall in implied volatility .

If volatility rises after trade initiation, the position will likely suffer losses.

Let’s look at an example trade:

CVX SHORT CALL

Date: July 7, 2020

Current Price: $86.31

Trade Set Up:

Sell 1 CVX Aug 21st, 95 call @ $1.51

Premium: $151 Net credit

Capital (Margin) Requirement: $864

Return Potential: 17.48%

Annualized Return Potential: 141.78%

The trade was never under pressure and expired for a full profit.

Let’s also look at an example of a losing trade to illustrate what can go wrong.

UNH SHORT CALL

Date: February 27, 2020

Current Price: $256.76

Sell 1 UNH Apr 17 th , 290 call @ $3.06

Premium: $306 Net credit

Capital Requirement: $2,568

Return Potential: 11.92%

Annualized Return Potential: 86.99%

This trade did not work at all and within a few days the trade was down $950. A good example of what can go wrong.

The margin requirement had also blown out to $5,495 which is an important consideration to keep in mind when trading short calls.

Short call options are a risky strategy due to the unlimited loss potential, so they are not recommended for beginners.

Traders employing this strategy are looking for the stock to decline, stay flat, or not rise by too much.

The profit is limited to the premium received.

Aggressively bearish traders might place the short call closer to the money in order to obtain a larger negative delta exposure and higher premium received.

Trade safe!

Disclaimer: The information above is for educational purposes only and should not be treated as investment advice . The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.

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What is an Assignment in Options?

How does assignment work, what does “write an option” mean, how do you know if an option position will be assigned, what happens after an option is assigned, short put vs. short call, option assignment examples, option assignment summed up, supplemental content, what is an option assignment & how does it work.

Options assignment refers to the process in which the obligations of an options contract are fulfilled. This happens when the holder of an options contract decides to exercise their rights.

When an option holder decides to exercise, the Options Clearing Corporation (OCC) will randomly assign the exercise notice to one of the option writers.

A call option gives the holder the right to buy an underlying asset at a specified price (the strike price) within a certain period. If the holder decides to exercise a call option, the seller (writer) of the option is obligated to sell the underlying asset at the strike price. In this case, the option seller is said to be "assigned."

A put option gives the holder the right to sell an underlying asset at a specified price within a certain period. If the holder decides to exercise a put option, the seller of the option is obligated to buy the underlying asset at the strike price. Again, the option seller is "assigned" in this scenario.

Importantly, being assigned on an option can lead to significant financial obligations, particularly if the option writer does not already own the underlying asset for a call option (known as a naked call) or does not have the cash to buy the underlying asset for a put option. Therefore, option writers should be prepared for the possibility of assignment.

Options assignment works in tandem with the exercise of an options contract. It's the process of fulfilling the obligations of the options contract when the option holder decides to exercise their rights.

In general, the options assignment process includes four steps, as outlined below:

Option Exercise : The holder of the option (the investor who purchased the option) decides to exercise the option. This decision is typically made when it is beneficial for the option holder to do so. For example, if the market price of the underlying asset is favorable compared to the strike price in the option contract.

Notification : When the option is exercised, the Options Clearing Corporation (OCC) is notified. The OCC then selects a member brokerage firm, which in turn chooses one of its clients who has written (sold) an options contract of the same series (same underlying asset, strike price, and expiration date) to be assigned.

Assignment : The selected option writer (the investor who sold the option) is then assigned by the brokerage. The assignment means that the option writer now has the obligation to fulfill the terms of the options contract.

Fulfillment : If it was a call option that was exercised, the assigned writer must sell the underlying asset to the option holder at the agreed-upon strike price. If it was a put option that was exercised, the assigned writer must buy the underlying asset from the option holder at the strike price.

Writing an option refers to the act of selling an options contract.

This term is used because the seller is essentially creating (or "writing") a new contract that gives the buyer the right, but not the obligation, to buy or sell a security at a predetermined price within a specific period.

There are two types of options that investors/traders can write: a call option or a put option. Further details for each are outlined below:

Writing a Call Option : This process involves selling someone the right to buy a security from you at a specified price (the strike price) before the option expires. If the buyer decides to exercise their right, you, as the writer, must sell them the security at that strike price, regardless of the market price. If you don't own the underlying security, this is known as writing a naked call, which can involve substantial risk.

Writing a Put Option : This process involves selling someone the right to sell a security to you at a specified price before the option expires. If the buyer decides to exercise their right, you, as the writer, must buy the security from them at that strike price, regardless of the market price.

When an investor/trader writes an option, he/she receives the option’s premium from the buyer. This premium is theirs to keep, regardless of whether the option is exercised.

However, writing options can be a highly risky endeavor, so investors and traders should be aware of these risks (and accept) them, prior to engaging in options writing activity.

For call options, if the market price goes much higher than the strike price, the option writer (i.e. seller) is still obligated to sell at the lower strike price. For put options, if the market price goes significantly lower than the strike price, the option writer (i.e. seller) must buy the asset at the higher strike price, potentially resulting in a loss.

As such, writing options (i.e. selling options) is typically reserved for experienced investors/traders who are comfortable with the risks involved.

It’s impossible to know for certain if a given option will be assigned.

However, there are several situations in which an option assignment becomes more likely, as detailed below:

In-the-money (ITM) Options : An option is more likely to be exercised, and therefore assigned, if it's in the money . That means the market price of the underlying asset is above the strike price for a call option, or below the strike price for a put option. This is because exercising the option in such a scenario would be profitable for the option holder.

Near Expiration : Options are also more likely to be exercised as they approach their expiration date, particularly if they are in the money. This is because the time value of the option (a component of its price) diminishes as the option nears expiration, leaving only the intrinsic value (the difference between the market price of the underlying asset and the strike price).

Dividend Payments : For call options, if the underlying security is due to pay a dividend, and the amount of the dividend is larger than the time value remaining in the option's price, it might make sense for the holder to exercise the option early to capture the dividend. This could lead to early assignment for the writer of the option.

Remember, even if the above scenarios exist, it does not guarantee assignment, as the option holder might not choose to exercise the option. The decision to exercise is entirely up to the option holder.

Therefore, when writing (i.e. selling) options, investors and traders should be prepared for the possibility of assignment at any time until the option expires.

Remember, as the writer of the option, you receive and keep the premium regardless of whether the option is exercised or not. But this premium may not be sufficient to offset any loss from the assignment. That's why writing options involves risk and requires careful consideration.

1. Call Option Assignment:

Imagine a scenario in which you've written (sold) a call option for ABC stock. The call option has a strike price of $60 and the expiration date is in one month. For selling this option, you've received a premium of $5.

Now, let's say the stock price of ABC stock shoots up to $70 before the expiration date. The option holder can choose to exercise the option since it is now "in-the-money" (the current stock price is higher than the strike price). If the option holder decides to exercise their right, you, as the writer, are then assigned.

Being assigned means you have to sell ABC shares to the option holder for the strike price of $60, even though the current market price is $70. If you already own the ABC shares, then you simply deliver them. If you don't own them, you must buy the shares at the current market price ($70) and sell them at the strike price ($60), incurring a loss.

2. Put Option Assignment:

Suppose you've written a put option for XYZ stock. The put option has a strike price of $50 and expires in one month. You receive a premium of $5 for writing this option.

Now, if the stock price of XYZ stock drops to $40 before the option's expiration date, the option holder may choose to exercise the option since it's "in-the-money" (the current stock price is lower than the strike price). If the holder exercises the option, you, as the writer, are assigned.

Being assigned in this scenario means you have to buy XYZ shares from the option holder at the strike price of $50, even though the current market price is $40. This means you pay more for the stock than its current market value, incurring a loss.

What does an option assignment mean?

What happens when a call is assigned.

If it was a call option that was exercised, the assigned writer must sell the underlying asset to the option holder at the agreed-upon strike price.

What happens when a short option is assigned?

How often do options get assigned.

The frequency with which options get assigned can vary significantly, depending on a number of factors. These can include the type of option, its moneyness (whether it's in, at, or out of the money), time to expiration, volatility of the underlying asset, and dividends.

According to FINRA , only about 7% of options positions are typically exercised. But that does not imply that investors can expect to be assigned on only 7% of their short positions. Investors may have some, all, or none of their short options positions assigned.

How often do options get assigned early?

According to FINRA , only 7% of all options are exercised, which indicates that early assignment options constitute an even lower percentage of the total than 7%.

How late can options be assigned?

In most cases, options can be exercised (and thus assigned to the writer) at any time up to the expiration date for American style options. However, the exact timing can depend on the rules of the specific exchange where the option is traded.

Typically, the holder of an American style option has until the close of business on the expiration date to decide whether to exercise it. Once the decision is made and the exercise notice is submitted, the Options Clearing Corporation (OCC) randomly assigns the exercise notice to one of the member brokerage firms with clients who have written (sold) options in the same series. The brokerage firm then assigns one of its clients.

Do I keep the premium if I get assigned?

As the writer of the option, you receive and keep the premium regardless of whether the option is exercised or not. But this premium may not be sufficient to offset any loss from the assignment. That's why writing options involves risk and requires careful consideration.

Episodes on Assignment

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Alternative Name

Uncovered Call

Pre-Requisite Strategy Knowledge

Short Stock

Legs of Trade

Sell 1 XYZ call
Short 10 XYZ January 50 calls for $1.45, less fees and commissions

Rule to Remember

Max potential profit (gain).

Net Premium Collected

Break-Even Point

The breakeven point occurs when XYZ stock price is trading equal to the strike price plus the net premium collected.

Max Potential Risk (LOSS)

Ideal outcome.

XYZ price rises significantly above the strike price plus net premium paid

Margin Requirement

Early assignment risk.

Equity options in the United States can be exercised on any business day, and the holder of a short options position has no control over when they will be required to fulfill the obligation. Therefore, the risk of early assignment must be considered when entering positions involving short options. Early assignment of options is generally related to dividends, and short calls that are assigned early are generally assigned on the day before the ex-dividend date. In-the-money calls whose time value is less than the dividend have a high likelihood of being assigned.
The short call strategy has early assignment risk.
If the stock price is above the strike price of the short call, a decision must be made if early assignment is likely. If you believe assignment is likely and you do not want a short stock position, then appropriate action must be taken. Before assignment occurs, the risk of assignment can be eliminated by: (1) Purchasing the call option to close out your short call position.
If early assignment of a short call does occur, stock is sold. If you do not own the stock that is to be delivered, then a short stock position is created. If you do not want a short stock position, you can close it out by buying stock in the marketplace. Important consideration : Assignment of a short call might also trigger a margin call if there is not sufficient account equity to support the short stock position.
Also, if a short option is assigned it creates a short position which may result in hard to borrow securities lending fees.

- ‌Powered by The Options Institute

Disclaimer: Cboe and Webull are separate and unaffiliated companies. This content is provided by Cboe and does not reflect the official policy or position of Webull. This content is for educational purposes only and is not investment advice or a recommendation or solicitation to buy or sell securities.

Assignment Risk, Short Calls, And Ex-Dividend Dates

If you are short call options in a stock or an Exchange Traded Product (ETP) like SPY or IWM you need to be aware of ex-dividend dates. If your calls are in the money, even barely, your options may be assigned right before the security goes ex-dividend—and then you may have a problem.

For example, let’s say you hold a credit call spread position: short calls with lower strikes and long calls at higher strike prices. If your short calls are assigned the night before the underlying goes ex-dividend you will wake up to find yourself no longer with an option spread, but short the security and half of your option spread remaining.

First the good news:

Your overall risk profile hasn’t changed much, you still have the long calls protecting you if the underlying moves up
Your theoretical maximum profits on the position are higher if the underlying drops because your gains are no longer limited by the strike price of your short position
You’ve collected the entire time premium from your short call position—you’ll only be down the intrinsic value of the call, the amount it was in the money.

The bad news:

Since you were short the security when it went ex-dividend you now owe the dividend on the security. That amount will be deducted from your account when the dividend is distributed. Your potential worst case loss from your position has been increased by that amount.
Do you have the margin in your account to support the short position in the underlying? If not you will shortly be getting a “courtesy” call from your broker suggesting that you add funds or liquidate your short position. There will be a deadline.
If the security you just went short is “hard to borrow” you will be getting a call from your broker. Your short position exists, but actual shares have to be borrowed to sustain it more than a couple of days. Extra fees may be involved, or if shares can’t be found to borrow you’ll have to cover the position.
Is your spread position in an IRA? If so being short a security is a definite problem—not allowed by the IRS. You must cover the short within a day or two—if not your broker will do it for you. Luckily this will not result in a “ free riding violation ” because the cash generated by your short sale will be available in time to cover the purchase.

Call owners with in the money (ITM) options will typically exercise their options the evening before the ex-dividend date. Holding the calls through the ex-dividend would cost them money because the underlying security usually drops in value when it goes ex-dividend. At market open the drop in the securities’ price will usually roughly match the dividend amount.

In addition to assignment risk, the other thing to watch with ex-dividend dates is distortion in the implied volatility (IV) of options. For example, the IV of deep ITM calls will be distorted because the market will not give you a profitable low-risk trade (e.g., a covered call with deep ITM calls virtually certain to be assigned). You can create this position, but the premium from selling the calls will be non-existent, and therefore only risk and no profit.

Notice the implied volatility of zero on the bid side of the SPY ITM options a few days before the security goes ex-dividend:

At the money (ATM) calls will also have reduced IVs. Normally these won’t be assigned because they will have premiums higher than the dividend payout. On the ex-dividend date you’ll see their IV’s jump up—just enough such that the call prices don’t move despite any drop in the underlying. No easy money here.

If you find yourself the day before ex-dividend with ITM short calls there are a couple things you can do:

Sit tight and take the risk that the options be assigned—not all ITM calls will be exercised. The deeper they are in the money, the higher the likelihood they will be assigned.
Roll your short options up to a higher strike price. This should be done late in the day when it is unlikely that the underlying will move significantly before market close
Close out your entire position

One of the advantages of options on indexes like SPX (S&P 500) and RUT (Russell 2000) is that they don’t pay dividends—hence no worries about ex-dividend dates.

For special dividends, option strike prices are often adjusted to protect option holders from unforeseen corporate actions. For more see Profiting from Special Dividends .

It’s possible to use options to lower risks while collecting dividends, but it’s not a slam dunk. For more information see Dividend Capture With Covered Calls .

Click here to leave a comment

5 thoughts on “assignment risk, short calls, and ex-dividend dates”.

Would it be accurate to say the SPX call options still price in dividends the SPY would receive but cannot be called away due to being European-style?

The SPX calculation does not make any adjustments for regular dividends, so there will be a subtle drop in the index when individual stocks go ex-dividend. I doubt that calls could be used to capture this drop–if the drop was going to be considerable, say with multiple stocks going ex on the same day the option markets would probably compensate by lowing the IV before the ex and raising it on the day of.

I trade in Brazil. In the brazilian exchange(BMFBOVESPA), when a stock goes ex, all the options on it also have their strike lowered to match the dividend, so this does not happen here (the exercise of ITM stock calls). However, sometimess our index futures are below the spot index (due to the loan rate on the index components being higher than the risk free rate), and some american ITM calls on the spot index get exercised early, so in these ocasions american and european(both available) have different prices.

Hi Kurast, That’s interesting. You must get used to having lots of different strike prices..

Hi, Kurast. Turquoise does the same for Russia originated depository receipts. I thought it was a unique practice on this exchange, but you confirmed BM&F did the same.

Options Assignment

What is early options assignment what happens when options get assigned, options assignment - introduction, options assignment prior to expiration, options automatic exercise and assignment during expiration, can i avoid getting automatically exercised or assigned during expiration, what happens when long call options get automatically exercised, what happens when short call options get automatically exercised, what happens when long put options get automatically exercised, what happens when short put options get automatically exercised, generalisations about short options assignments before expiration, options assignment threshold during expiration, options assignment questions:.

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Short Call Vertical Spread

Short Call Vertical Spread P&L Diagram
What’s Required?

Example of a Short Call Vertical Spread

How to Place a Short Call Vertical Spread

Short Call Vertical Spread Options Strategy Explained

Short call vertical summary.

A short call vertical spread is a bearish position involving a short and long call with different strike prices in the same expiration.
When setting up a short call spread, the short call is more expensive than the long call since the short call is closer to the money, resulting in net credit.
Buying a call at a higher strike price against the short call provides upside protection and reduces the maximum profit potential due to the cost of the long call.
The credit received for the short call vertical spread is an investor's max profit if it expires OTM and is worthless at expiration.
The max loss of a short vertical call spread is known upfront by subtracting the credit received from the spread width. However, losses can be more due to short stock assignment if the underlying closes and expires between the spread.

A short call credit spread is a defined-risk bearish strategy, where the trader wants the underlying price to fall. A short call vertical spread consists of two call option contracts in the same expiration: a short call closer to the stock price and a long call further out-of-the-money (OTM). The short call acts as a hedge in the same expiration. The short call is always more valuable than the long call in a short call vertical spread, resulting in a net credit the investor receives upfront after selling it. The goal is for the short call spread to lose value.

A defined risk spread is a strategy that caps your maximum loss potential. Max loss occurs when the underlying rises and breaches both legs of the call credit spread, causing both legs to go in-the-money (ITM) and trade at its full value, which is its spread width. When preparing a short call vertical spread order, you know what is at risk at order entry.

One characteristic of a short call vertical is that the overall credit received is lower than just selling a naked call, because it requires purchasing a call to define the risk. In other words, you must pay for protection.

However, one potential benefit of a defined-risk spread is that it requires a lower buying power requirement since we know the max loss ahead of time, which can be more capital efficient for accounts with limited buying power.

Like any other short options strategy, you will initially receive a credit when selling a call vertical spread. The value of the call spread will decrease when the underlying falls in price, which is exactly what you want for your short call vertical spread to be profitable to keep the credit.

Additionally, the value of a short call vertical spread can decrease over time when the price of the underlying remains constant, and the spread remains OTM due to time decay. The ideal scenario for a short call vertical spread is that it remains OTM at expiration, expires worthless, and yields a max profit which is the credit received on trade entry, less commissions and fees. The trade can also be “bought back” (covered) for less than the credit received upfront to yield a profit or bought back for more than the credit received upfront to realize a loss. In other words, the trade does not need to be held to expiration.

On the other hand, the max loss scenario for a short call vertical spread is that it moves in-the-money (ITM). This happens if the stock price rises and trades above the long call strike. The spread can trade for a maximum value of the distance between the strikes, and the trader would have to buy back the spread to close the trade. At expiration, max loss would be realized in this case, or the trader can buy back the spread for potentially less than max loss before expiration if they choose to exit the position.

When a credit spread expires fully ITM, the short and long call contracts convert to 100 short and long shares of stock respectively, and the trader is left with no position and realizes max loss.

Expiration Risk for Short Call Vertical Spreads

A defined-risk vertical spread is no longer a defined risk position if one leg of the spread expires in the money, and the other does not. The risk lies with pin risk on the day of expiration, which is the risk surrounding the uncertainty of where the underlying will close to determine whether an option is in or out of the money. Options that expire in the money by $0.01 or more are auto-exercised, resulting in the short call option converting to 100 short shares of stock. In the case of a short call vertical spread, a partially ITM spread will convert to 100 short shares at the short strike price, and the OTM long call option would not get auto-exercised to offset the short shares [with long shares]. When you end up with short shares, the risk is unlimited to the upside, so manage accordingly.

Additionally, any options strategy involving short options, including a short call vertical , may face after-hours risk on the day of expiration. In summary, although the vertical may have expired OTM based on the stock's closing print, an OTM short call option can become ITM based on any extreme upward price movement after the market close, resulting in an unexpected assignment of short shares. As a result, the investor would assume the (unlimited) risk of 100 short shares per contract assigned. The only way to eliminate after-hours risk is by closing any short options positions before expiration.

Due to the risk of getting assigned short shares, it's crucial to have a plan, like closing or rolling the position before expiration, to avoid this particular assignment risk, especially when the account does not have sufficient account equity to take on the resulting position. Please visit the tastytrade Help Center to learn more about Expiration Risk.

Profit & Loss Diagram of a Short Call Vertical Spread

A short call vertical spread is a bearish trade that can yield a profit if the underlying remains below the short call strike until expiration, illustrated with a red C flag on the P/L diagram. As the share price drops or remains constant below the short call strike price, the value of the call credit spread can decrease over time depending on various factors such as changes in volatility or how fast the stock price falls.

The initial credit received after selling a call vertical spread is an investor's max profit if it expires OTM and is worthless, as indicated where the green profit zone flattens above the x-axis. Losses on the call credit spread occur when the underlying rises above the breakeven price, as illustrated where the green and red zones converge on the x-axis.

As mentioned, defined-risk spreads are subject to expiration risk and are no longer defined risk if the underlying closes between the vertical spread.

Lastly, investors can experience their max loss potential on a short call vertical spread if it expires ITM entirely. However, the long call helps cap losses, as the green C flag indicates. As a result, the maximum loss on a short call vertical is the initial credit received minus the spread width, which the flattened red zone of the diagram illustrates.

What’s Required for a Short Call Vertical Spread?

Two call options in the same expiration.

Sell to Open -1 short call
Buy to Open +1 long call (any strike price above the short call)

XYZ currently trading @ $50

-1 XYZ 55-strike call @ $3 credit
+1 XYZ 60-strike call @ $1.50 debit

Collect a $1.50 credit ($150 total)

Spread Width: Long strike – Short strike = 60 – 55 = $5

How to place a short call vertical spread order on the tastytrade desktop platform

Using the strategy menu.

Enter a symbol.
Navigate to the Trade tab.
Go to the Table mode.
Click on an expiration date to expand.
Click the Strategy Menu and locate the Vertical strategy. From left to right, click each column to display Short, Call, and Go.
The long strike order will display a green bar, and the short strike will display in a red bar in the expanded expiration. Drag each strike up or down to the desired strike.
Go to the order ticket to determine the quantity, price, time-in-force (TIF), etc. before clicking "Review & Send." Review everything including commissions and fees before sending the order.

Building it Manually

Click the Bid price of the short leg.
Click the Ask price of the long leg.

All investments involve risk of loss. Please carefully consider the risks associated with your investments and if such trading is suitable for you before deciding to trade certain products or strategies. You are solely responsible for making your investment and trading decisions and for evaluating the risks associated with your investments.

Multi-leg option strategies incur higher transaction costs as they involve multiple commission charges.

Options involve risk and are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially significant losses. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

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Options Made Easy For Everyone

Covered Call Assignment – How To Avoid It & What To Do If Assigned

posted on May 5, 2023

Imagine you have a Covered Call right now and the underlying stock is now above your Covered Call strike price.

You’re panicking now because if you get assigned on the Covered Call, you will be Short 100 shares.

The worst part is that you don’t have the necessary capital to meet the margin requirement of Shorting the 100 shares.

And that would result in a margin call.

So what do you do?

And how do you avoid getting the risk of early assignment on your Covered Call?

What Happens When You’re Assigned On Your Covered Call?

Let’s assume you already own 100 shares of Amazon (Ticker: AMZN).

Then you sell a Covered Call at the strike price of 135.

If AMZN settles anywhere above $135 at the expiration date of the Covered Call, then your 100 shares will be called away at that price.

That means your 100 shares would be sold at $135.

When Are You In Danger Of Early Assignment?

So when is your Covered Call in danger of getting assigned early?

There’s always the possibility of early assignment when:

Your Covered Call is In-The-Money (ITM). That means the current stock price is above your Covered Call strike price.
And when your Covered Call is close to expiration.
And when your extrinsic value is very little.
And if the stock pays a dividend, you could get assigned early if the dividend paid is more than the extrinsic value.

In short, the main factor that determines whether you are in danger of getting assigned early is when the extrinsic value is very little.

That’s because when there’s little extrinsic value left in your Covered Call, there’s not much incentive left for the buyer to hold on to the Call Option.

So it’s very important to pay attention to how much extrinsic value is left in your Covered Call.

The good news is that getting assigned early is actually very rare.

To understand a little better why this is so, we need to get into the minds of the Call buyer (the person taking the opposite trade of your Covered Call).

Understanding The Mindset of Call Buyers

For this, let’s use the same example as we did earlier.

And let’s also assume that for selling the 135 strike price Covered Call you received a premium of $1.50.

Now let’s switch sides and imagine you’re now the Call buyer that just purchased the Call Option for $1.50.

Next, we want to come up with the different scenarios that might happen and see if you would exercise your Call Option early for each of them.

Scenario 1: Stock goes to $140.

In this scenario, the stock has gone up to $140 and your Call Option has now increased to $6.00:

$5.00 in intrinsic value.
$1.00 in extrinsic value.

By exercising your Call Option, you would be buying 100 shares of the underlying stock at $135.

And you will forfeit your extrinsic value of $1.00.

Knowing this, would you exercise your Call Option?

Let’s compare exercising versus selling off your Call Option.

If you exercise and you sell off your shares immediately after exercising, your profits would be:

[($140 – $135) x 100 shares] – $150 for purchasing the Call Option = $350

If you just sold off your Call Option, your profits would be:

($6.00 – $1.50) x 100 shares = $450

As you can see, you would have made more money if you had simply sold off your Call Option.

That’s because the extrinsic value boosted your profits.

But if you exercised your Call Option, you forfeited the extra $100 in profits.

Furthermore, exercising can come with extra fees from some brokers.

So in this scenario, it’s highly unlikely that the Call Buyer would exercise their Call Option, even if it’s ITM.

Scenario 2: Stock goes to $150.

Now what if the stock went higher to $150 instead?

In this scenario, your Call Option is now worth $15.25:

$15.00 in intrinsic value.
$0.25 in extrinsic value.

If you are the Call Buyer, would you exercise your Call Option now?

If you do, you’d be giving up $0.25 in extrinsic value.

That’s $25 in additional profits that you would miss out on by exercising.

I’m pretty sure it’s unlikely that you would exercise because I wouldn’t as well.

While $25 may not be much, it’s still money that we leave on the table by exercising.

So it makes no sense for us to exercise the Call Option and get into a Long stock when there’s still lots of time left before expiration.

If we really wanted to buy the stock, we still can wait till the last few days to expiration before deciding whether to exercise the Long Call or not.

So as you can see, extrinsic value plays a big part in the Call buyer’s decision whether to exercise the Call Option or not.

Scenario 3: Stock goes to $140 but goes ex-dividend tomorrow paying a dividend of $0.50.

This scenario is similar to scenario 1, but the difference is that the stock will be paying a dividend.

This is where a Short Call can have dividend risk.

That means that the Call buyer may want to exercise their Option to get into a Long stock position to get the dividends.

So in this scenario, your Call Option’s value is the same as scenario 1 which is $6.00:

However, the underlying stock will be paying a dividend of $0.50.

If you’re the Call buyer, would you exercise your Long Call?

Let’s compare exercising versus selling the Call Option.

If you exercise it, you will forfeit the $1.00 in extrinsic value, but gain the dividend of $0.50.

But if you sell the Call Option, you will forfeit the $0.50 dividend, but profit on the $1.00 in extrinsic value.

So in this scenario, you would gain more by simply selling the Call Option.

Hence, it’s for the Covered Call to get assigned in this scenario.

Scenario 4: Stock goes to $150 but goes ex-dividend tomorrow paying a dividend of $0.50.

This scenario is similar to scenario 2 but the stock goes ex-dividend tomorrow with a dividend payout of $0.50.

In this scenario, your Call Option’s value is $15.25:

But there’s a dividend payout of $0.50.

In this scenario, if you were the Call buyer, would you exercise your Long Call?

If we applied the same analysis as in scenario 3, then we would know that it makes sense to exercise the Call Option now because the dividend is greater than the extrinsic value.

That means by exercising the Call Option, you’d gain an additional $0.25 compared to if you hadn’t exercised your Long Call.

So in this scenario, there’s a high likelihood of getting assigned early.

How To Avoid Early Assignment

So how do you avoid the risk of early assignment?

By rolling your Covered Call .

When you roll, you’re adding duration to your Covered Call.

And by adding duration, you’re adding extrinsic value.

Remember, extrinsic value is simply time value.

The more days left to expiration, the more extrinsic value there is.

Additionally, when rolling, you have the choice to roll your Covered Call up as well.

That means you roll to a higher strike on top of rolling to a further expiration date.

This way you increase the chances of Covered Call working out.

But what if you’re already assigned?

If you’re already assigned and your shares have been called away, there are 3 things you can do:

Buy your shares back immediately if you’re afraid the stock will continue rallying.
Wait for a pullback before buying again.
Sell a Cash Secured Put at the price you were called away.
Find other trades.

At the end of the day, having your shares called away isn’t the end of the world.

You’ve already made a profit (assuming your Covered Call was above your entry price), and you can always find another trade.

And if you think the stock will keep going up in the long term, then just buy back the stock because you would still be in profit if you’re right on your long-term view.

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March Madness

Samford robbed by refs on clean block vs. Kansas for worst call of March Madness

Samford got screwed out of an amazing March Madness moment by the refs.

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Share All sharing options for: Samford robbed by refs on clean block vs. Kansas for worst call of March Madness

The No. 4 seed Kansas Jayhawks led No. 13 seed Samford by 22 points in the second half of their first round matchup in the 2024 men’s NCAA tournament. That’s when the Bulldogs started an inspired run to chip away at the lead and produce what should have been a March Madness classic.

The champions out of the Southern Conference, Samford made it a one-point game with an incredible three-pointer from Jaden Campbell with 20 seconds left. Kansas inbounded the ball and then chucked it downcourt to Nick Timberlake. Timberlake could have pulled up and tried more clock, but instead he decided to try to dunk the ball. Samford’s A.J. Staton-McCray was lurking from behind, and he made one of the greatest chasedown blocks you will ever see.

Only one problem: the refs called it foul. Timberlake received two free throws, which he made to ice the game.

Kansas beat Samford, 93-89, on a game marred by an obviously incorrect foul call late. Watch the incredible chasedown block from Staton-McCray here:

This was called a foul on Samford. One of the cleanest chasedown blocks I've ever seen. pic.twitter.com/GheFyGei0h — Ricky O'Donnell (@SBN_Ricky) March 22, 2024

The ref was in perfect position to make that call, and they still blew it. That should have been a clean block, with Samford going the other way to win the game in the final possession. It should have gone down as one of the greatest defensive plays we’ve ever seen in March Madness. The refs robbed Samford of a potential win, and they robbed the fans of what could have been an all-time great March moment.

While there were several replay reviews during the game, that particular play was not reviewable . What a shame.

Kansas now plays No. 5 seed Gonzaga in the round of 32.

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National Politics | Senate passes $1.2 trillion funding package in…

National Politics

Subscriber only, national politics | senate passes $1.2 trillion funding package in early morning vote, ending threat of partial shutdown.

Speaker of the House Mike Johnson, R-La., speaks at the Capitol in Washington, Wednesday, March 20, 2024. The race is on for Congress to pass the final spending package for the current budget year and push any threats of a government shutdown to the fall. With spending set to expire for several key federal agencies at midnight Friday, the House and Senate are expected to take up a $1.2 trillion measure that combines six annual spending bills into one package.(AP Photo/J. Scott Applewhite, File)

FILE – Senate Majority Leader Chuck Schumer, D-N.Y., talks withreporters to discuss efforts to pass the final set of spending bills to avoid a partial government shutdown, at the Capitol in Washington, March 20, 2024. The race is on for Congress to pass the final spending package for the current budget year and push any threats of a government shutdown to the fall. With spending set to expire for several key federal agencies at midnight Friday, the House and Senate are expected to take up a $1.2 trillion measure that combines six annual spending bills into one package.(AP Photo/J. Scott Applewhite, File)

By KEVIN FREKING and MARY CLARE JALONICK (Associated Press)

WASHINGTON (AP) — The Senate passed a $1.2 trillion package of spending bills in the early morning hours Saturday, a long overdue action nearly six months into the budget year that will push any threats of a government shutdown to the fall. The bill now goes to President Joe Biden to be signed into law.

The vote was 74-24. It came after funding had expired for the agencies at midnight, but the White House sent out a notice shortly after the deadline announcing the Office of Management and Budget had ceased shutdown preparations because there was a high degree of confidence that Congress would pass the legislation and the president would sign it on Saturday.

“Because obligations of federal funds are incurred and tracked on a daily basis, agencies will not shut down and may continue their normal operations,” the White House statement said.

Prospects for a short-term government shutdown had appeared to grow Friday evening after Republicans and Democrats battled over proposed amendments to the bill. Any successful amendments to the bill would have sent the legislation back to the House, which had already left town for a two-week recess.

But shortly before midnight Senate Majority Leader Chuck Schumer announced a breakthrough.

“It’s been a very long and difficult day, but we have just reached an agreement to complete the job of funding the government,” Schumer said. “It is good for the country that we have reached this bipartisan deal. It wasn’t easy, but tonight our persistence has been worth it.”

While Congress has already approved money for Veterans Affairs, Interior, Agriculture and other agencies, the bill approved this week is much larger, providing funding for the Defense, Homeland Security and State departments and other aspects of general government.

The House passed the bill Friday morning by a vote of 286-134, narrowly gaining the two-thirds majority needed for approval. More than 70% of the money would go to defense.

The vote tally in the House reflected anger among Republicans over the content of the package and the speed with which it was brought to a vote. House Speaker Mike Johnson brought the measure to the floor even though a majority of Republicans ended up voting against it. He said afterward that the bill “represents the best achievable outcome in a divided government.”

In sign of the conservative frustration, Rep. Marjorie Taylor Greene, R-Ga., initiated an effort to oust Johnson as the House began the vote but held off on further action until the House returns in two weeks. It’s the same tool that was used last year to remove the last Republican speaker, Kevin McCarthy of California.

The vote breakdown showed 101 Republicans voting for the bill and 112 voting against it. Meanwhile, 185 Democrats voted for the bill and 22 against.

Rep. Kay Granger, the Republican chair of the House Appropriations Committee that helped draft the package, stepped down from that role after the vote. She said she would stay on the committee to provide advice and lead as a teacher for colleagues when needed.

Johnson broke up this fiscal year’s spending bills into two parts as House Republicans revolted against what has become an annual practice of asking them to vote for one massive, complex bill called an omnibus with little time to review it or face a shutdown. Johnson viewed that as a breakthrough, saying the two-part process was “an important step in breaking the omnibus muscle memory.”

Still, the latest package was clearly unpopular with most Republicans, who viewed it as containing too few of their policy priorities and as spending too much.

“The bottom line is that this is a complete and utter surrender,” said Rep. Eric Burlison, R-Mo.

It took lawmakers six months into the current fiscal year to get near the finish line on government funding, the process slowed by conservatives who pushed for more policy mandates and steeper spending cuts than a Democratic-led Senate or White House would consider. The impasse required several short-term, stopgap spending bills to keep agencies funded.

The first package of full-year spending bills, which funded the departments of Veterans Affairs, Agriculture and the Interior, among others, cleared Congress two weeks ago with just hours to spare before funding expired for those agencies.

When combining the two packages, discretionary spending for the budget year will come to about $1.66 trillion. That does not include programs such as Social Security and Medicare, or financing the country’s rising debt.

To win over support from Republicans, Johnson touted some of the spending increases secured for about 8,000 more detention beds for migrants awaiting their immigration proceedings or removal from the country. That’s about a 24% increase from current levels. Also, GOP leadership highlighted more money to hire about 2,000 Border Patrol agents.

Democrats, meanwhile, are boasting of a $1 billion increase for Head Start programs and new child care centers for military families. They also played up a $120 million increase in funding for cancer research and a $100 million increase for Alzheimer’s research.

“Make no mistake, we had to work under very difficult top-line numbers and fight off literally hundreds of extreme Republican poison pills from the House, not to mention some unthinkable cuts,” said Sen. Patty Murray, the Democratic chair of the Senate Appropriations Committee.

Sen. Susan Collins, the top Republican on that committee, appealed to her GOP colleagues by stating that the bill’s spending on non-defense programs actually decreases even before accounting for inflation. She called the package “conservative” and “carefully drafted.”

“These bills are not big spending bills that are wildly out of scope,” Collins said.

The spending package largely tracks with an agreement that then-Speaker McCarthy worked out with the White House in May 2023, which restricted spending for two years and suspended the debt ceiling into January 2025 so the federal government could continue paying its bills.

Shalanda Young, director of the White House Office of Management and Budget, told lawmakers that last year’s agreement, which became the Fiscal Responsibility Act, will save the federal government about $1 trillion over the coming decade.

Associated Press congressional correspondent Lisa Mascaro and staff writers Farnoush Amiri and Chris Megerian contributed to this report.

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Middle East crisis — explained

There's already 'catastrophic' hunger in gaza. who decides when to call it a 'famine'.

Nurith Aizenman

Palestinian people with empty bowls wait for food at a donation point in Rafah. A report out this week shows widespread hunger and malnutrition in Gaza but stopped short of declaring it a "famine." Abed Rahim Khatib/Anadolu via Getty Images hide caption

Palestinian people with empty bowls wait for food at a donation point in Rafah. A report out this week shows widespread hunger and malnutrition in Gaza but stopped short of declaring it a "famine."

An international committee of experts issued a dire warning about Gaza this week: Famine is now "imminent" in northern Gaza and a risk across the entire territory. Yet they also found that about 30% of the population – some 667,000 people – are currently experiencing "catastrophic" levels of hunger, meaning those individuals have so little food they are effectively starving. So why stop short of declaring the situation a famine already? And who are these experts that get to decide?

NPR spoke with two people working within the web of government officials, aid workers, and analysts responsible for monitoring hunger crises around the world.

Here are five takeaways:

There's a very specific, internationally-agreed upon system for gauging hunger crises

The process that the world currently relies on to track food emergencies got its start in the 1980s, says Tim Hoffine, quality assurance and methods adviser on the United States Famine Early Warning Systems Network, known as FEWS NET. In the wake of famines in East and West Africa, aid officials in the United States government decided they needed a way to continuously monitor hunger levels around the world. The idea, says Hoffine, was to provide "independent, timely and evidence-based analysis" to help decision makers prevent future famines.

That's what led to the establishment of FEWS NET, Hoffine's employer. It's funded through the State Department's United States Agency for International Development and contracts with experts outside the U.S. government to collect and analyze data on at-risk locations on a monthly basis.

But even after FEWS NET's creation there was no agreed-upon international standard for designating the severity of a given hunger crisis. That made it difficult to coordinate with other donor governments and aid organizations on making quick and effective decisions about where to allocate scarce aid dollars.

As World Food Programme spokesperson Steve Taravella put it, "There is a serious need for the aid community to understand the levels of hunger in a scientific, authoritative way, rather than just anecdotally from people saying this is happening here or there. We needed something reliable and authoritative that everybody working on these issues could use as a baseline for moving forward." So in 2004 during a major food emergency in Somalia, FEWS NET worked with a raft of international partners to develop and fund what's now known as the "Integrated Food Security Phase Classification" initiative – or IPC.

"It's a mouthful of humanitarian jargon, but it's basically the authoritative, respected, scientific mechanism for measuring levels of hunger in different areas," says Taravella.

The IPC has a coordinating office at the United Nations Food and Agriculture Organization in Rome. But it convenes special working groups of experts from multiple partners in order to analyze troubled locations on a case-by-case basis.

Essentially, says Hoffine, "Donors wanted a single estimate of need. And the IPC responded to that desire for consensus around a single estimate."

Who Declares A Famine? And What Does That Actually Mean?

Multiple conditions need to be met before a location is technically considered in "famine".

The IPC categorizes a given location's hunger level according to a five-phase scale. (FEWS NET – which continues to monitor world hunger hotspots on a monthly basis independently of the IPC – uses that scale as well.)

Communities in IPC phase one are considered basically fine. In phase two people are still generally getting enough food, but the community is considered "stressed" because a substantial share of its households are having difficulty affording other essential non-food needs.

At phase three – called "crisis" – "that's where we start getting nervous," says Taravella. Many households are starting to have trouble getting food specifically, in addition to other basics. "They might not have meals as often," he notes.

People in phase three may resort to coping strategies that enable them to get enough food in the short term, but at a cost that reduces the resources they can count on to survive in the longer term. For instance, says Taravella, "they might start selling off livestock. It's a very uncomfortable period." IPC's latest finding is that 26% of people in Gaza are in this "crisis" phase.

In phase four, called "emergency," these hardships become more pronounced. The gaps in food consumption are even bigger, and people resort to even more dangerous strategies to feed themselves – Hoffine calls them "really extreme forms of coping that would help you protect food consumption, but are going to jeopardize your ability to meet your food needs later on." This could include a person liquidating practically all their assets, or in the case of farmers, eating the seeds they would need to plant in order to get food from the next harvest.

In phase four the incidence of acute malnutrition and excess deaths starts to rise. FEWS NET's report places Gaza as a whole in this phase currently. IPC puts the figure at 39% of the population in phase four – with another 30% in the last and highest phase.

It's not until a location reaches this phase five that it's actually considered in "famine." Three conditions must be met, starting with at least one in five households in the area experiencing what's called "catastrophe." This means, says Hoffine, that the household is "facing an extreme lack of food that would in the near term lead them to face acute malnutrition and mortality."

The second condition: At least 30% of children under age 5 are suffering from acute malnutrition based on measurements of their height and weight – essentially they start to look skeletal, what's known as wasting. Lastly, at least two in every 10,000 adults are dying every day from causes other than trauma.

That final measure, notes Hoffine, reflects the fact that extreme lack of food often kills people not only through outright starvation, but by compromising their immune systems to an extent that they're unable to fight off diseases.

There's an even higher bar for actually declaring a famine.

It's also not enough for either FEWS NET or the IPC to find that the three criteria for famine have been met. Before they can formally classify a location as being in phase five, they are obligated to submit their evidence to a review committee of experts specially convened for that purpose by the IPC. In the case of the latest reports on Gaza, IPC and FEWS NET had produced separate though very similar analyses, and the review committee considered and signed off on both simultaneously.

Even if a location is found to be in phase five, neither FEWS NET nor the IPC would make any official proclamation that a famine is underway. "It's up to government institutions, United Nations upper leadership, and other high-level representatives to actually make a famine declaration," says Hoffine.

Even before "famine" conditions are officially reached in an area, many people there may already be starving

The fact that all three thresholds must be met before a location is considered in famine helps explain why a large share of the region's people may experience dire conditions well before it officially reaches phase five.

"What's really important to understand is that until famine thresholds are breached, you would still have people dying from hunger or hunger-related mortality," says Hoffine. "So in Gaza you would still expect there to be mortality. And the longer this goes without a solution, the more that we can expect that sort of mortality to occur."

Indeed, the IPC's report on Gaza estimates that in northern Gaza about 70% of people are now facing "catastrophic" levels of food insecurity. The report also finds that "it's highly likely" the threshold for acute malnutrition among children has just been reached, and it concludes that unless urgent steps are taken, the death rate will rise above the famine threshold by May.

For its part, the Israeli government has played down the hunger crisis in Gaza, with one government spokeswoman going so far as to call it a "myth." Other Israeli officials blame Hamas for the chaos in Gaza that hampers aid delivery. Israel has allowed some food aid into the territory since easing a two-week blockade in October, but aid groups say Israeli measures, such as searching trucks for weapons, are limiting the number of deliveries and exacerbating the crisis.

It's not too late – but time is running short

But Hoffine and Taravella stress that the caveats in their organization's reports are the key here. Both FEWS NET and IPC say that if hostilities in Gaza are halted and humanitarian workers are given the access they need to rush in aid, there is still time to avoid widespread famine there.

This, after all, is the point of the international famine classification system. When a location is found to be in one of the higher hunger phases, it doesn't trigger any obligatory steps that governments or organizations must take. Yet the designation is still a powerful tool for mobilizing a response, says Taravella, because it puts the world on notice.

Taravella points to a recent observation by his organization's chief economist, Arif Hussain. "Several years ago," said Hussain, "when [famines] happened in certain places, you could say, 'I'm sorry. I did not know.' Today we see crises in real time. So we cannot say we did not know."

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As its workers stream to the U.S., Mexico runs short of farmhands

ETZATLÁN, Mexico — For decades, Mexicans crossed the border to pick Americans’ lettuce, grapes and strawberries. Mexico had a seemingly inexhaustible supply of farmhands — tough, hard-working men who did the jobs most Americans didn’t want.

But the country is running short of farmworkers.

The workforce is graying; nearly three-quarters of Mexican campesinos are over 45 . Young people are turning up their noses at farm jobs. And those willing to do migrant work have other options. Nearly 300,000 a year travel to the United States on seasonal agricultural visas, a fourfold increase in a decade.

“They’re taking a significant percentage of the available workers,” fretted Aldo Mares, a farm executive here in Jalisco state. He’s had to scramble this season to find workers to pick his juicy strawberries, blackberries and raspberries.

The worker shortage reflects a paradox often overlooked in the supercharged U.S. immigration debate. Even as American politicians outdo each other in proposals to fortify the border with Mexico , economic forces are pulling the two sides closer. The U.S. appetite for made-in-Mexico goods, from avocados to automobiles to airplane parts, is growing so fast that it’s straining the workforce that produces them.

That’s particularly clear in agriculture. The companies that put berries on Americans’ tables, such as Driscoll’s and Naturipe Farms, work with growers on both sides of the border, taking advantage of different harvest seasons. But in Mexico, the farms are competing with manufacturers for workers. In a land once known for cheap, abundant labor, business groups say job vacancies could top 1 million.

In a once-unthinkable move, Mexican farmers are now calling for a major guest-worker program of their own. The government is taking the first step, planning to soon open a database of 14,000 jobs in agriculture and other sectors to non-Mexicans.

While wages here remain well below U.S. levels, employers hope some migrants might be willing to swap the American Dream for a Mexican one.

“We’re talking about Mexico having 1.5 million unfilled job openings,” said Giovanni Lepri, the Mexico representative for the Office of the U.N. High Commissioner for Refugees. “People in search of a better life could fill at least part of that.”

Now Mexico’s an agricultural superpower, too

A shortage of Mexican farmworkers might seem startling — like Italy running out of pizza chefs, or Colombia lacking coffee producers.

Mexico was long a nation of peasant farmers, who cultivated corn, beans, chiles and other crops. When U.S. employers struggled with labor shortages during World War II, they turned to Mexico. Millions of farmworkers went north on temporary visas between 1942 and 1964 under the bracero program , putting an indelible mark on U.S. agriculture. Even today, two-thirds of employees on American farms are Mexican-born.

But thanks to free-trade treaties, Mexico has become a major agricultural power of its own. Its exports to the United States — its top customer — doubled over the past decade to reach $45 billion in 2023.

Mares, 49, is typical of the new era of ag CEOs. He’s a city boy from Guadalajara who studied business administration. In the 1990s, as the North American Free Trade Agreement kicked in, a professor told his class that 40 percent of them would wind up in agriculture.

“We said, ‘He’s crazy,’” Mares said. “And here I am.”

The countryside of Jalisco, once planted with corn and sugar cane, is now a shimmering white sea of plastic tunnels, filled with genetically supercharged berry bushes — many shipped south by U.S. companies.

Finding workers to pick all that fruit is increasingly difficult.

In the poorer south, which is the traditional source of Mexico’s migrant laborers, President Andrés Manuel López Obrador has launched big infrastructure projects, leading to a boom in construction jobs.

In the industrialized north, the brisk cross-border trade has created more factory work. Mexico surged past China last year to become the No. 1 source of imports to the United States .

“The strong U.S. economy drives the Mexican labor market,” said Raymond Robertson, director of the Mosbacher Institute for Trade, Economics and Public Policy at Texas A&M University.

That integration is especially evident in agriculture. The number of H2-A temporary visas issued by the U.S. government to farmworkers has skyrocketed from around 74,000 in 2013 to 311,000 last year. The vast majority go to Mexicans. Another 26,000 Mexicans go to Canada on similar visas. American farmers say they need the Mexican workers, even at a time of record migration, since many of those crossing the U.S. border are city dwellers from places like Venezuela, Cuba and Ecuador.

In Jalisco, farmers say the exodus has compounded a labor shortage caused by the country’s declining birthrate and competition from other industries. They’re 10 to 15 percent below the number of crop pickers they need for the spring harvest.

“Mexico has to think seriously about what to do about workers,” said Juan Cortina, president of the National Agricultural Council, which represents farm producers. “We need temporary work visas for our neighbors to the south.”

Better salaries, benefits for migrant farmworkers

Mares agrees a long-term labor solution is needed. But he has to worry about this season, these berries. Ninety percent of the fruit from his Green Gold Farms go to the United States, whose berry harvest won’t peak for months.

His company and others have teams of recruiters scouring the countryside, contacting potential workers via bullhorn, fliers and, increasingly, Facebook.

It can be a tough sell. The jobs they offer — six days a week of plucking berries — are exhausting. Harvesters, paid by the bucket, are in continuous motion. And the industry has a history of abuses, including dilapidated housing and unfair pay practices.

These days, employers have to offer better conditions to attract workers. They’ve hiked harvesters’ salaries in the last few years by up to 100 percent. While wages still pale by U.S. standards, they’ve been enough to slash extreme poverty in many rural areas — “an extremely important development,” said Agustín Escobar, a Mexican agricultural researcher.

Miguel Ángel de Jesús, 19, said he earns twice as much picking berries in Jalisco as he could back home in the hardscrabble mountains of Puebla state. His after-tax salary at Agrovision, a U.S.-based company that sells under the Fruitist brand, is around 400 pesos a day, roughly $24, and his food and dormitory are covered.

“We don’t complain,” he said, as his hands flew over a blueberry bush, the plump spheres cascading into plastic buckets strapped to his waist. “We come from places where they don’t give us all this.”

On billboards and banners around rural Jalisco, berry companies offer potential hires savings plans, social security, signing bonuses and a new incentive: temporary visas to work at partner firms in the United States during their harvest seasons, at much higher salaries.

Mexico has long recruited Guatemalan guest workers to help pick coffee beans in southern Chiapas state. But now authorities are crafting a broader program aimed at the historic flows of migrants headed to the U.S. border. About 2.5 million migrants entered Mexico last year; more than 140,000 sought asylum.

The new program would allow migrants and people living abroad to apply for visas to fill jobs in Mexico. The 14,000 jobs in the first cohort is small, but the program is set up to grow, officials say.

Persuading foreigners to work in Mexican agriculture may not be easy, however. Cerritos, a berry and avocado company, hired around 30 Central Americans through a pilot project. Half soon quit; they’d been factory workers and didn’t take to farming, said Pablo Lázaro, a company official. The rest left after three months. “They said, ‘We found people to help us cross,’” he recalled, and they left for the United States.

In the short term, Mexico’s guest-worker programs might not make much of a dent in the northbound migration flow, said Andrew Selee, president of the Migration Policy Institute in Washington. But given pressure on U.S. politicians to crack down on undocumented immigration, that could change.

“If it becomes harder to cross the border at some point,” Selee said, “Mexico could become an increasingly attractive place to go.”

Lorena Rios contributed to this report.

We urgently call for increased Alzheimer's funding in New York State

2-minute read.

As a caregiver for my mother Hope who has early stage Alzheimer's disease, diagnosed two years ago, I was glad to join Alzheimer’s Association volunteers from across the state recently in Albany to advocate for increased funding for the Alzheimer’s Caregiver Assistance Program, or AlzCAP, which has been a lifeline for me.

When a loved one is diagnosed with Alzheimer’s, it is an overwhelming task for their caregivers to understand the disease and make plans for action. AlzCAP services provided me the needed education and resources, including multiple person-to-person and virtual touchpoints.

In New York, 546,000 family caregivers like me provide care worth over $19 billion annually to their loved ones with dementia. Despite our significant contributions and savings to the state, many caregivers lack adequate support. Funding for AlzCAP has remained stagnant for years. New York State allocates a mere $5 million towards AlzCAP — an amount that falls woefully short of what is necessary to combat this devastating disease effectively in a state as big and diverse as ours.

Taking care of someone with Alzheimer’s is financially and emotionally taxing. AlzCAP provides essential services like 1:1 care planning, support groups, and educational programs, which are vital for those confronting this disease. For many caregivers, these services are the only support they can access.

New York can do better. Please join me in calling on state Sen. Bill Weber and Assemblyman Karl Brabenac and the other members of the NYS Legislature to increase funding for AlzCAP from $5 million to $7 million.

David Hendler lives in Suffern and is a board member of the Alzheimer's Association, Hudson Valley Chapter.

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Long calendar spread with calls

Potential goals.

To profit from neutral stock price action near the strike price of the calendar spread with limited risk in either direction.
To profit from a directional stock price move to the strike price of the calendar spread with limited risk if the market goes in the other direction.

Explanation

A long calendar spread with calls is created by buying one “longer-term” call and selling one “shorter-term” call with the same strike price. In the example a two-month (56 days to expiration) 100 Call is purchased and a one-month (28 days to expiration) 100 Call is sold. This strategy is established for a net debit (net cost), and both the profit potential and risk are limited. The maximum profit is realized if the stock price is equal to the strike price of the calls on the expiration date of the short call, and the maximum risk is realized if the stock price moves sharply away from the strike price.

Example of long calendar spread with calls

Maximum profit.

The maximum profit is realized if the stock price equals the strike price of the calls on the expiration date of the short call. This is the point of maximum profit, because the long call has maximum time value when the stock price equals the strike price. Also, since the short call expires worthless when the stock price equals the strike price at expiration, the difference in price between the two calls is at its greatest.

It is impossible to know for sure what the maximum profit will be, because the maximum profit depends of the price of long call which can vary based on the level of volatility.

Maximum risk

The maximum risk of a long calendar spread with calls is equal to the cost of the spread including commissions. If the stock price moves sharply away from the strike price, then the difference between the two calls approaches zero and the full amount paid for the spread is lost. For example, if the stock price falls sharply, then the price of both calls approach zero for a net difference of zero. If the stock price rallies sharply so that both calls are deep in the money, then the prices of both calls approach parity for a net difference of zero.

Breakeven stock price at expiration of the short call

Conceptually, there are two breakeven points, one above the strike price of the calendar spread and one below. Also, conceptually, the breakeven points are the stock prices on the expiration date of the short call at which the time value of the long call equals the original price of the calendar spread. However, since the time value of the long call depends on the level of volatility, it is impossible to know for sure what the breakeven stock prices will be.

Profit/Loss diagram and table: Long calendar spread with calls

*Profit or loss of the long call is based on its estimated value on the expiration date of the short call. This value was calculated using a standard Black-Scholes options pricing formula with the following assumptions: 28 days to expiration, volatility of 30%, interest rate of 1% and no dividend.

Appropriate market forecast

A long calendar spread with calls realizes its maximum profit if the stock price equals the strike price on the expiration date of the short call. The forecast, therefore, can either be “neutral,” “modestly bullish,” or “modestly bearish,” depending on the relationship of the stock price to the strike price when the position is established.

If the stock price is at or near the strike price when the position is established, then the forecast must be for unchanged, or neutral, price action.

If the stock price is below the strike price when the position is established, then the forecast must be for the stock price to rise to the strike price at expiration (modestly bullish).

If the stock price is above the strike price when the position is established, then the forecast must be for the stock price to fall to the strike price at expiration (modestly bearish).

Strategy discussion

A long calendar spread with calls is the strategy of choice when the forecast is for stock price action near the strike price of the spread, because the strategy profits from time decay. While the “low” net cost to establish the strategy and the potentially “high” percentage profits are viewed as attractive features by some traders, calendar spreads require the stock price to be “near” the strike price as expiration approaches in order to realize a profit. Consequently, one cannot overlook the possibility of “high” percentage losses if the stock price moves away from the strike price. Long calendar spreads with calls, therefore, are suitable only for experienced traders who have the necessary patience and trading discipline. Patience is required, because this strategy profits from time decay, and stock price action can be unsettling as it rises and falls around the strike price as expiration approaches. Trading discipline is required, because “small” changes in stock price can have a high percentage impact on the price of a calendar spread. Traders must, therefore, be disciplined in taking partial profits if possible and also in taking “small” losses before the losses become “big.”

Impact of stock price change

“Delta” estimates how much a position will change in price as the stock price changes. Long calls have positive deltas, and short calls have negative deltas. The net delta of a long calendar spread with calls is usually close to zero, but, as expiration approaches, it varies from −0.50 to +0.50 depending on the relationship of the stock price to the strike price of the spread.

With approximately 20 days to expiration of the short call, the net delta varies from approximately +0.10 with the stock price 5% below the strike price to −0.10 with the stock price 5% above the strike price.

With approximately 10 days to expiration of the short call, the net delta varies from approximately +0.20 with the stock price 5% below the strike price to −0.20 with the stock price 5% above the strike price.

When the stock price is slightly below the strike price as expiration approaches, the position delta approaches +0.50, because the delta of the long call is approximately +0.50 and the delta of the short call approaches 0.00.

When the stock price is slightly above the strike price as expiration approaches, the position delta approaches −0.50, because the delta of the long call is approximately +0.50 and the delta of the short call approaches −1.00.

The position delta approaches 0.00 if the calls are deep in the money (stock price above strike price) or far out of the money (stock price below strike price). If the calls are deep in the money, then the delta of the long call approaches +1.00 and the delta of the short call approaches −1.00 for a net spread delta of 0.00. If the calls are out of the money, then the deltas of both calls approach 0.00.

Impact of change in volatility

Volatility is a measure of how much a stock price fluctuates in percentage terms, and volatility is a factor in option prices. As volatility rises, option prices tend to rise if other factors such as stock price and time to expiration remain constant. Long options, therefore, rise in price and make money when volatility rises, and short options rise in price and lose money when volatility rises. When volatility falls, the opposite happens; long options lose money and short options make money. “Vega” is a measure of how much changing volatility affects the net price of a position.

Since a long calendar spread with calls has one short call with less time to expiration and one long call with the same strike price and more time, the impact of changing volatility is slightly positive, but very close to zero. The net vega is slightly positive, because the vega of the long call is slightly greater than the vega of the short call. As expiration approaches, the net vega of the spread approaches the vega of the long call, because the vega of the short call approaches zero.

Impact of time

The time value portion of an option’s total price decreases as expiration approaches. This is known as time erosion. “Theta” is a measure of how much time erosion affects the net price of a position. Long option positions have negative theta, which means they lose money from time erosion, if other factors remain constant; and short options have positive theta, which means they make money from time erosion.

Since a long calendar spread with calls has one short call with less time to expiration and one long call with the same strike price and more time, the impact of time erosion is positive if the stock price is near the strike price of the calls. In the language of options, this is a “net positive theta.” Furthermore, the positive impact of time erosion increases as expiration approaches, because the value of the short-term short at-the-money call decays at an increasing rate.

If the stock price rises above or falls below the strike price of the calendar spread, however, the impact of time erosion becomes negative. In either of these cases, the time value of the shorter-term short call approaches zero, but the time value of the longer-term long call remains positive and decreases with passing time.

Risk of early assignment

Stock options in the United States can be exercised on any business day, and holders of short stock option positions have no control over when they will be required to fulfill the obligation. Therefore, the risk of early assignment is a real risk that must be considered when entering into positions involving short options.

While the long call in long calendar spread with calls has no risk of early assignment, the short call does have such risk. Early assignment of stock options is generally related to dividends, and short calls that are assigned early are generally assigned on the day before the ex-dividend date. In-the-money calls whose time value is less than the dividend have a high likelihood of being assigned.

If assignment is deemed likely and if a short stock position is not wanted, then appropriate action must be taken. Before assignment occurs, the risk of assignment can be eliminated in two ways. First, the entire spread can be closed by selling the long call to close and buying the short call to close. Alternatively, the short call can be purchased to close and the long call can be kept open.

If early assignment of the short call does occur, stock is sold, and a short stock position is created. If a short stock position is not wanted, there are two choices. First, the short stock position can be closed by exercising the long call. Second, shares can be purchased in the marketplace and the long call can be left open. Generally, if there is time value in the long call, then it is preferable to purchase shares rather than to exercise the long call. It is preferable to purchase shares in this case, because the time value will be lost if the call is exercised.

Note, also, that whichever method is used to close the short stock position, the date of the stock purchase will be one day later than the date of the short sale. This difference will result in additional fees, including interest charges and commissions. Assignment of a short call might also trigger a margin call if there is not sufficient account equity to support the short stock position.

Potential position created at expiration of the short call

If the short call is assigned, then stock is sold and a short stock position is created. In a long calendar spread with calls, the result is a two-part position consisting of short stock and long call. This position has limited risk on the upside and substantial profit potential on the downside. If a trader has a bearish forecast, then this position can be maintained in hopes that the forecast will be realized and a profit earned. If the short stock position is not wanted, then the position must be closed either by exercising the call or by purchasing stock and selling the call (see Risk of Early Assignment above).

Other considerations

Long calendar spreads with calls are frequently compared to short straddles and short strangles, because all three strategies profit from “low volatility” in the underlying stock. The differences between the three strategies are the initial investment (or margin requirement), the risk and the profit potential. In dollar terms, short straddles and short strangles require much more capital to establish, have unlimited risk and have a larger, albeit limited, profit potential. Long calendar spreads, in contrast, require less capital, have limited risk and have a smaller limited profit potential. Traders who are not suited to the unlimited risk of short straddles or strangles might consider long calendar spreads as a limited-risk alternative to profit from a neutral forecast. One should not forget, however, that the risk of a long calendar spread is still 100% of the capital committed. The decision to trade any strategy involves choosing an amount of capital that will be placed at risk and potentially lost if the market forecast is not realized. In this regard, choosing a long calendar spread is similar to choosing any strategy.

The long calendar spread with calls is also known by two other names, a “long time spread” and a “long horizontal spread.” “Long” in the strategy name implies that the strategy is established for a net debit, or net cost. The terms “time” and “horizontal” describe the relationship between the expiration dates. “Time” implies that the options expire at different times, or on different dates. The term “horizontal” originated when options prices were listed in newspapers in a tabular format. Strike prices were listed vertically, and expirations were listed horizontally. Therefore a “horizontal spread” involved options in the same row of the table; they had the same strike price but they had different expiration dates.

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House passes $1.2 trillion spending bill, sending it to Senate hours before shutdown

WASHINGTON — The House voted 286-134 on Friday to pass a sweeping $1.2 trillion government funding bill , sending it to the Senate just hours before the deadline to prevent a shutdown .

Soon after, the Senate voted 78-18 to advance the bill procedurally, but all 100 senators will need to greenlight a final vote to skip other hurdles and pass the bill before the midnight deadline. If that doesn’t happen, the government would be forced into a partial shutdown on Saturday morning. President Joe Biden has called on Congress to pass it quickly and said he’ll sign the bill.

“This hasn’t been a perfect process. But we should never let the perfect be the enemy of the good,” House Minority Leader Hakeem Jeffries, D-N.Y., said. “This is a good result for the American people.”

The bill , released early Thursday, funds the departments of Homeland Security, State, Labor, Defense, Health and Human Services and various other agencies. Together with the $459 billion bill passed earlier this month, it fully funds the federal government to the tune of $1.659 trillion through September, after months of stopgap bills and negotiations.

Chuck Schumer speaks with Mike Johnson at the Capitol.

“I’m confident we will take up and pass this bill. Whether or not we can avoid a government shutdown solely depends on a small number of Senate Republicans, and whether they will drag this out through the weekend,” Sen. Chris Coons, D-Del., said on MSNBC.

Sen. Lisa Murkowski, R-Alaska, said the impending two-week recess would motivate the Senate to get unanimous consent to vote quickly and pass the bill. “This is the United States Senate,” Murkowski said. “We’re motivated by recesses.”

The legislation was negotiated by House Speaker Mike Johnson, R-La., Senate Majority Leader Chuck Schumer, D-N.Y., top appropriators in both parties and the White House. Both parties touted some wins: Democrats said they “defeated outlandish cuts” proposed by Republicans and kept out abortion restrictions. GOP leaders touted more immigration funding for border agents and detention beds for Immigration and Customs Enforcement.

“Against all odds, House Republicans refocused spending on America’s most crucial needs, at home and abroad,” House Appropriations Chair Kay Granger, R-Texas, said before the vote.

Rep. Chip Roy, R-Texas, complained that members only had about 24 hours to review the bill and attacked his fellow Republicans for failing to secure the immigration restrictions they wanted, referring to the killing of a University of Georgia student that has been a rallying cry for GOP members.

“My Republican colleagues cannot go campaign against mass parole and use the name of Laken Riley , because you pass a bill in her name, when you fund the very policies that lead to her death,” Roy said on the House floor. “Any of my Republican colleagues you want to spend this year campaigning against open borders — it’s a laugh. Because today, if you vote for this abomination of a bill, you will be voting to fund it. You will be voting to fund the very policies that you will campaign against.”

Prior to the vote, leaders of the hard-right House Freedom Caucus held a news conference trashing the bill, calling it “capitulation,” “surrender" and “chock full of crap.”

But they didn’t take questions about whether they’ll seek to retaliate by removing Johnson or calling for changes in GOP leadership, whom they blamed for the final product.

“This is not a personnel discussion for us today,” Rep. Bob Good, R-Va., the chair of the Freedom Caucus, told reporters. “We’re talking about the bill and the policy today.”

On the eve of the vote, Rep. Matt Gaetz, R-Fla., who led the push to remove Kevin McCarthy , R-Calif., as speaker last year, said he doesn’t plan on filing a motion to vacate Johnson.

“If we vacated this speaker, we’d end up with a Democrat,” Gaetz told reporters. “I worry that we’ve got Republicans who would vote for Hakeem Jeffries at this point. I really do.”

Sahil Kapur is a senior national political reporter for NBC News.

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Spending deal done, though final action could slip past deadline

The package was on a faster track until Saturday.

Appropriators had been working on a full-year continuing resolution for the Homeland Security measure after talks fell apart last week. But in a dramatic shift after White House intervention, lawmakers pivoted back to a full-year bill late Sunday.

Top White House aides including Jeff Zients, Biden’s chief of staff, and Steve Ricchetti, counselor to the president, pressed Hill negotiators to abandon the adjusted stopgap measure under consideration. They argued that funding “anomalies,” or targeted increases for priority accounts, wouldn’t be enough given the scope of the crisis at the U.S.-Mexico border.

Since then, White House officials and House GOP leaders had been trading offers on an expanded border package. By late Monday they had whittled down their differences and were finalizing the measure, sources said.

“A few questions still to answer, but they seem to be home,” one person familiar with the talks said earlier in the day. “Have to figure out the runway needed to formally land the plane.”

Republicans had also been seeking more funding for Immigration and Customs Enforcement detention capacity, and Democrats were pushing for more money for Transportation Security Administration pay raises.

All of the different priorities were putting pressure on negotiators to maintain a DHS spending ceiling that didn’t violate the topline fiscal 2024 deal Johnson brokered with Senate Majority Leader Charles E. Schumer, D-N.Y. There was some concern another one of the bills in the package would potentially have to give up some of its money in order to fulfill all the Homeland needs, which would pose its own set of problems.

The package includes the Defense, Labor-HHS-Education, Financial Services, Legislative Branch and State-Foreign Operations measures as well as Homeland Security. Biden signed final fiscal 2024 appropriations for the other six annual bills into law earlier this month.

Short-term lapse

Both parties spent the weekend carping at each other over who would be to blame if there was another partial shutdown.

But the reality is that a deal between the White House and Johnson is very likely to clear Congress and get to Biden’s desk; it just might take more time than anyone would like.

The experience of January 2018 is instructive. Congress let funding lapse at midnight on Jan. 20, 2018, with federal agencies spending the weekend and all day Monday in a shutdown.

Then-President Donald Trump signed a three-week stopgap measure into law late in the evening of Monday, Jan. 22, and the Office of Personnel Management gave federal workers the all-clear to report back to work Tuesday morning.

In his memo to federal agencies providing guidance just prior to the funding lapse, then-Office of Management and Budget Director Mick Mulvaney wrote that furloughed workers shouldn’t do any work-related activities over the weekend. On Monday, they should report to work only for the “no more than three or four hours” needed to tie up loose ends and wind down their projects, he wrote.

At that point in 2018, there still wasn’t agreement on Capitol Hill on the stopgap bill’s duration. If there’s a deal in place on the spending bill this week with a reasonable expectation that it has the votes to pass, OMB can hold any shutdown orders for up to 24 hours, under longstanding agency guidance.

Furlough notices would still need to be sent out to affected workers, likely on Sunday. But as in 2018 that can be pulled back quickly after final appropriations are signed into law.

In a review of past government funding gaps, the Congressional Research Service grouped the severity of shutdown into categories, classifying “brief” lapses as anything lasting three days or fewer.

“Notably, many of the funding gaps do not appear to have resulted in a ‘shutdown,'” the CRS wrote . Some of those gaps “did not result in a completion of shutdown operations due to both the funding gap’s short duration and an expectation that appropriations would soon be enacted.”

After funding for agencies covered by the first six fiscal 2024 spending bills cleared the Senate the evening of March 8, Biden was at his home in Wilmington, Del. Due to the late hour and the time it took to get the bill to him for signing, funding technically lapsed overnight and into Saturday morning. But OMB held any shutdown implementation procedures, knowing it would all be over shortly.

Paul M. Krawzak and Peter Cohn contributed to this report.

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