We are discussing two separate issues. The Fidelity rule stated is simply a lapse policy. If you have a GOOG call .01 in the money (the OCC policy for auto exercise) and you do not tell your broker to lapse, the option will be exercised. This is an important point for high priced or high volatile stocks. If you expect the market to open down on Monday, .01 in the money GOOG options doesn't guarantee a profit and in fact could be a significant loss. The thread author is asking what other brokers have as a policy for when they liquidate in the money options that will create a cash deficit in a cash account. Do they liquidate the option on Friday (and when) or do they liquidate the stock on Monday.
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Annoyed with ameritrade option policy-venting
- Thread starter thebubs
- Start date
Quote from thebubs:
I got a call from ameritrade today... s
1) I agree that if they do that to you, change firms immediately.
2) Try this: Tell them that an option gives ITS OWNER the RIGHT. but not the OBLIGATION to exercise the option and that you will not accept the fact that they want to change the conditions of the option contract to suit their own greedy needs.
3) Complain to the OCC that the broker is violating the terms of the option contract, and ask what they plan to do about it:
options@theocc.com
Good luck
Mark
I've had many problems with Ameritrade in the past. I am happy now with my current broker.
Quote from thebubs:
I got a call from ameritrade today saying that if I do not close my in the money options by noon friday they will close them for me!
The issue with that is I have a calender call on at a 16 strike price, the stock is currently trading at 16.03, if it falls 4c on friday it expires worthless, I realize I have to sell the front month prior to market close but 4 hours early seems insane. I called them back and explained that to them and they said they understood but that is there policy, I replied that if that is your policy fine, but I spend alot of money on commissions with you and if they are closed by anyone besides me I'm changing brokers. I see there point but why not the last 30 minutes. Can anyone tell me if this is the case with other online broker, ie. thinkorswim, etrade or elsewhere. Suggestions
Ameritrade is not the only firm that does this. Firms do it to protect themselves and a lot of the time it protects client's that don't really know what they're doing. Not saying that about you personally, but there are a lot of gamblers out there that trade online. 4 hours does seem a little early to close out positions, guess they must have a lot of accounts to go through.
and Ameritrade bought TOS?!...god help us.
Quote from thebubs:
just an update the stock continued to go up so I bought the option back prior to noon so I did not find out if they really were going to exercise it with out my permission, regardless I am defidently looking for a new broker.
You misled the respondents on this thread by incorrectly stating, in your original post, that you needed to "sell" the front month call option, so you got incorrect advise.
When i read your original post i realized immediately that something was wrong, because in a conventional call calendar the front month would be short, and if itm you would be obligated to replace it with stock, or buy it back before expiration. You were covered by the back month, long call, but you would not have wanted to exercise the back month because it still had time value. Most people would have done what you did if the options were only a few cents in the money, i.e., buy the front month back and keep most of the time value you sold. Then roll the calendar forward by selling a call in the next month forward.
So Ameritrade was not really mistreating you (although their commissions are too high) they wanted you to do the right thing and buy your front month back, in plenty of time before the close. Although they apparently were not very good at advising you on the best way to handle the position.
That's the way i read this anyway.
Incidently, if the calendar had been more itm, then you probably would have wanted to sell the long calls and use the proceeds to buy stock that would cover your short calls. That way you keep both the premium you earned when you sold the short calls in putting the position on and also keep the time value remaining in the long calls.
You mislead the respondents on this thread by stating that you can roll the calendar forward by selling a call in the next month forward. It takes more than that to roll it.Quote from piezoe:
Most people would have done what you did if the options were only a few cents in the money, i.e., buy the front month back and keep most of the time value you sold. Then roll the calendar forward by selling a call in the next month forward.
Buying stock to cover short calls can be a Pyrrhic victory... you will keep the premiums but you may lose a lot more on the stock.Incidently, if the calendar had been more itm, then you probably would have wanted to sell the long calls and use the proceeds to buy stock that would cover your short calls. That way you keep both the premium you earned when you sold the short calls in putting the position on and also keep the time value remaining in the long calls.
Quote from spindr0:
You mislead the respondents on this thread by stating that you can roll the calendar forward by selling a call in the next month forward. It takes more than that to roll it.
Buying stock to cover short calls can be a Pyrrhic victory... you will keep the premiums but you may lose a lot more on the stock.
"It takes more than that to roll it." That's self-evident isn't it?
You, in general do not want to exercise a long call that is well forward. If you need to cover your short calls with stock, you will most times be better off selling your long calls and using the proceeds to buy stock, rather than exercising. All let you do the math to prove to yourself that this is true.