Chapter 29: Introduction to Index Option Products and Futures 519 
Assuming the strategist did not anticipate assignment and therefore did not 
exercise his long calls, he has several choices after receiving an assignment notice the 
next morning. First, he could do nothing. This would be an overly aggressive bullish 
stance for someone who was previously in a hedged position, but it is sometimes 
done. The strategist who takes this aggressive tack is banking on the fact that the sell­
ing after the assignment will be temporary, and the market will rebound thereafter, 
giving him the opportunity to close out his remaining longs at favorable prices. This 
is an overly aggressive strategy and is not recommended. 
The most prudent approach to take when one receives an early assignment on 
a cash-based option is to immediately try to do something to hedge the remaining 
position. The simplest thing to do is to buy or sell futures, depending on whether the 
assignment was on a put or call. If one was assigned on a put, a portion of the bull­
ishness (short puts are bullish) of one's position has been removed. Therefore, one 
might buy futures to quickly add some bullishness to the remaining position. 
Generally, if one were assigned early on calls, part of the bearishness of his position 
would have been removed - short calls being bearish - and he might therefore sell 
futures to add bearishness to his remaining position. Once hedged, the position can 
be removed during that trading day, if desired; by trading out of the hedge estab­
lished that morning. 
One should receive this assignment notice early in the morning, so he can 
immediately hedge his position in the overnight markets. If he waits until the day ses­
sion opens, he might use futures or options to hedge. One should be particularly 
careful about placing market orders in an opening option rotation, especially on index 
options after a severe downside move has occurred the previous day. Market makers 
are very nervous and are not willing to sell puts as protection to the public in that sit­
uation. Consequently, puts are notoriously overpriced after a large down day in the 
stock market. One should refrain from buying put options in the opening rotation in 
such a case. In the future, it is possible that comparable situations may exist on the 
upside. To date, however, all gaps and severe mispricing anomalies have been on the 
bearish side of the market, the downside. 
CONCLUSION 
The introduction of index products has opened some new areas for option strategists. 
The ideas presented in this chapter form a foundation for exploring this new realm 
of option strategies. Many traders are reluctant to trade futures options because 
futures seem too foreign. Such should not be the case. By trading in futures options, 
one can avail himself of the same strategies available in stock option. Moreover, he 
may be able to take advantage of certain features of futures and futures options that