"okay with assignment" isn't okay | Outlier Insights
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Each week I work hard to gather and curate information for your convenience. There are two main topics to the newsletter:
Market Analysis is where I share 15 high summary points for the market from the week prior.
Erik’s Brainstorming is where I share a couple ideas to watch each week along with my perspectives; often market related, sometimes not.
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Be an Outlier!
-Erik
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I’ve kicked off another mini series for our Friday Options Trading for Beginners theme. This past Friday we analyze common failure points in a traders approach. This was broken into three broad buckets: knowledge, process, and behavior. Our next episode this Friday will expand on this and showcase different methods to applying fixes to these common issues.
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Master Options Implied Volatility (IV)
1. Market Analysis.
Major Indices Performance: The S&P 500 advanced 1.32% over the week, closing at a new all-time high of 6,388.64, marking its fifth consecutive record close amid positive earnings and trade
Nasdaq Composite: The Nasdaq rose approximately 1.2%, ending at around 21,108, with its 15th record close of 2025 driven by mixed tech results but overall sector strength
Russell 2000: Small-caps via the Russell 2000 gained about 0.85%, closing near 2,261, underperforming large-caps but showing resilience with broader market participation
Sector Highlights: Healthcare topped S&P 500 sectors with a 3.27% gain, bolstered by solid earnings and economic indicators supporting
Industrials and Materials: Industrials climbed 2.18%, while Materials added 2.15%, both benefiting from trade deal progress and manufacturing
Consumer Staples Performance: Consumer Staples was the sole declining sector, dipping 0.08%, reflecting mixed consumer sentiment signals
Tech Earnings Impact: Alphabet's strong results on AI demand propelled Communication Services up 2.44%, while Tesla's revenue drop limited Consumer Discretionary to 1.26%
Semiconductor Pressures: Intel's weak earnings dragged Information Technology to a modest 0.90% gain, highlighting sector vulnerabilities amid broader tech recovery
Trade Developments: New U.S. deals with Japan (tariffs to 15%), Indonesia, and Philippines boosted sentiment, with ongoing China talks adding to market uplift
Economic Indicators: Initial jobless claims dropped 4,000 to 217,000 for the week ended July 19, underscoring labor market robustness
PMI Insights: July preliminary PMIs indicated peak services activity for the year, countering persistent manufacturing slowdowns
Commodities Trends: Oil prices fell 3.12%, gold edged down 0.34%, affected by bond yield movements and trade uncertainties
Global Market Context: ECB maintained rates, European stocks rose on EU talks, and the U.S. dollar softened with trade positives
Volatility Measures: The VIX declined from 16.75 on July 22 to 14.93 by week's end, signaling reduced market fear and increased investor confidence
Market Breadth Indicators: S&P 500 breadth improved to 66% from 60.92% of stocks above key averages, with Nasdaq and Russell showing similar upticks, indicating broader rally participation
Economic Events for Next Week.
Looking to make serious progress as a trader without the BS? Join the Outlier community to accelerate your learning curve and develop your trading skillset. What members say:
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-James K.
2. Erik’s Brainstorming.
Sell puts on stocks you're okay with getting assigned. Hell, you even collect a premium to buy at a lower price!
Here's the issue: this mentality simply throws a tarp over the thing we don't want to look at. It is equally, if not more important, to carefully consider the potential risks to a trade.
Yet, traders will often shortcut this process and simply say “I’m okay with assignment” when considering the downside risk.
First, there is often a reason why the stock is lower. The CSP seller isn't "getting it at a discount"—it's the exact opposite. The SP will be ITM, meaning you are buying at a premium to the spot price. You're simply getting it "at a discount" from the onset of the trade. Again, this is all part of the mental disease that plagues traders who struggle to objectively evaluate scenarios.
Next, "okay with assignment" is a complete cop-out. So is, "take assignment and sell calls against the shares."
What happens if there is some sort of fundamental change in the company that is leading to the decline in price? At the origin of the trade, based on the available information, you were okay with assignment. However, shit happens. New information enters the system and MUST be integrated into our decision-making.
What happens if you get assigned, are excited to sell calls, then the stock plummets to where you can't sell above your basis and collect anything?
Zooming out, there is ABSOLUTELY NOTHING WRONG with selling CSPs. There is nothing wrong with taking assignment. There is nothing wrong with selling calls against the shares.
There is a MASSIVE ISSUE with lazy, half-hearted analysis. The fix?
Carefully consider the potential risks to a trade, even if they’re unlikely
Consider information or scenarios that might lead you to change your hypothesis. Create plans for these scenarios. Even though the exact scenario may not play out, you’ve jumpstarted the thought process which avoids locking up.
In action:
"Based on what I know today, I'm okay with assignment. However, if X, Y, Z happens, I wouldn't be, and I would take the trade down for a loss at A point.”
"My plan is to sell calls above my basis. However, if I can't, I will sell calls below my basis and manage like BLANK if they are challenged." Or: "If I can't sell calls above my basis, I'm okay waiting for it to rally back to a point where I can. Based on a historical analysis of this stock over the last 15 years, if it drops 15%, it typically takes 33 days before recovering."
Lazy trading won't work long term. To make this work, we have to be willing to hug the cactus. This means embracing the ugly parts of our trades and acknowledging those scenarios vs. completely skipping over them. This is the only way to create a robust process.
Be an Outlier
Erik
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