Mistake 1, critical severity
Not Monitoring ITM Short Options
Letting short calls or puts go deep ITM without management. Assignment becomes increasingly likely as extrinsic value approaches zero.
The fix
Monitor short options daily. Close or roll positions when they move significantly ITM. Set alerts for when short options approach your strike.
What it looks like. Sold $50 put, stock drops to $45. Put is now $5 ITM with minimal extrinsic. High chance of early assignment, especially if dividend approaches.
Mistake 2, critical severity
Ignoring Ex-Dividend Dates
Short call holders are often assigned before ex-dividend when the dividend exceeds remaining extrinsic value. Catch traders off guard.
The fix
Check dividend calendar before selling calls. Close or roll short calls before ex-dividend if ITM and extrinsic < dividend amount.
What it looks like. Sold slightly ITM covered call. Stock pays $1 dividend. Call has $0.50 extrinsic. Call buyer exercises to capture dividend. You lose shares.
Mistake 3, high severity
Not Having Capital for Assignment
Selling cash-secured puts without actually having the cash, or selling naked calls without ability to buy shares. Margin calls follow.
The fix
Only sell puts if you have cash to buy shares. Never sell naked calls. Use spreads for defined risk if capital is limited.
What it looks like. Sell $100 put 'for income' without $10,000 to back it. Assigned on gap down. Margin call forces liquidation at worst prices.
Mistake 4, high severity
Forgetting About After-Hours Moves
On expiration Friday, options can be exercised based on after-hours moves until 5:30 PM ET. What's OTM at 4 PM may be ITM by 5:30.
The fix
Close any near-the-money options before market close on expiration day. Don't gamble on OTM finishing OTM if it's close.
What it looks like. Short $100 put expires with stock at $100.50 (OTM). After-hours, stock drops to $99. Broker exercises put. Unexpected assignment Monday.
Mistake 5, medium severity
Not Understanding Spread Assignment
Having one leg of a spread assigned while the other isn't. Creates unexpected directional exposure and margin impact.
The fix
Close spreads before expiration if either leg is ITM. Don't let spreads expire - the risk/reward isn't worth the final pennies.
What it looks like. Bull put spread: short $100 put, long $95 put. Stock at $98. Short put assigned, you now own 100 shares. Long put worthless. Unintended stock position.
