Can one choose to not settle an ITM option at expiry?
- Thread starter kmiklas
- Start date
I don't know, my broker always auto-executed my trades and I never asked to stop when they were ITM.
Exercising a call is a taxable event now? Maybe you guys really missed the point...
Not even going to get into the ridiculousness of the marginal tax rates and trades v. income... my brain will hurt at the lack of common sense.
You Buy a INTC Call and it is $5 ITM at expiration and exercise the call...
You now own the stock at the strike price. There is no income event.
Cmon guys...
Not even going to get into the ridiculousness of the marginal tax rates and trades v. income... my brain will hurt at the lack of common sense.
You Buy a INTC Call and it is $5 ITM at expiration and exercise the call...
You now own the stock at the strike price. There is no income event.
Cmon guys...
The auto-exercise was created at the behest of the firms. Customers just used to hide and speculate with the brokerage balance sheet. The thing you need to get is a firm sense of - and it varies by firm - what happens when a contrary exercise notice is executed and keep in mind there was a time when all business was done by phone or fax.
I am going to exercise my right not to wait 24 hours and show why the answers are not on target.
I believe there is a margin situation created if you exercise your position. Suppose it is the last day of expiry with a strike price of 100 and the closing price is $100.10 You are long 10 options The broker automatically exercises. Monday morning you are long 1000 shares. You now have margin situation. If you close the position that day you need to have 25k excess cash or equivalent not to be in violation. A worst scenario is that there is bad news on Monday. e.g the stock trades e.g. 80. Now you are out 20k.
That is my recollection
I believe there is a margin situation created if you exercise your position. Suppose it is the last day of expiry with a strike price of 100 and the closing price is $100.10 You are long 10 options The broker automatically exercises. Monday morning you are long 1000 shares. You now have margin situation. If you close the position that day you need to have 25k excess cash or equivalent not to be in violation. A worst scenario is that there is bad news on Monday. e.g the stock trades e.g. 80. Now you are out 20k.
That is my recollection
and the phone time to connect is.... Then what?
You used taxes as the rationale for asking whether brokers (should) offer this as an option. An "illustrative example" still needs to be logically connectable to the thing it tries to illustrate. In this case, there's no warrant that links your example to your question.
But also, why not call your broker? Every firm probably has different processes for whether they allow this/how they allow this.
OP is using taxes and tax rates as a rationale for asking whether there's a way to prevent long ITM options from being executed. It stands to reason that he considers it a taxable event in his trading strategy (i.e., he plans to close out the shares he receives at expiry).