As others have pointed out: yes, it's possible; no, we can't tell you how, you have to call your broker; and don't do it for tax reasons, because that's misunderstanding tax law.
Can one choose to not settle an ITM option at expiry?
- Thread starter kmiklas
- Start date
As others have pointed out: yes, it's possible; no, we can't tell you how, you have to call your broker; and don't do it for tax reasons, because that's misunderstanding tax law.
Exactly.
You assume everyone lives in a margin tax rate area/territory. Germany, for example, has a progressive tax rate, where this might be a possibility (although the jump would be 1% not 7%)
I'm not sure the German tax system is very different from the U.S. in this regard. But either way, OP used $ in his example, so I think it was safe to assume.
I'm the OP, and no, it's not safe to assume. There are many different tax systems, and use of the dollar sign does not imply the US tax system.
The question is not about tax anyway, it's about allowing ITM contracts to expire.
You have to check with your broker for their specific rules on this.
Interactive Brokers allows contrary instructions. I'd guess that many other brokers do, as well.
Here's a scenario where you might want to do this.
Say you are long 10 ITM calls at expiry and short 1000s to offset the exercise.
The UL tanks AH below the calls' strike.
It is to your advantage to send contrary instructions and cover the shares.
Interactive Brokers allows contrary instructions. I'd guess that many other brokers do, as well.
Here's a scenario where you might want to do this.
Say you are long 10 ITM calls at expiry and short 1000s to offset the exercise.
The UL tanks AH below the calls' strike.
It is to your advantage to send contrary instructions and cover the shares.
Fair enough. Like we mentioned before, yes, it's possible, and yes, you'll need to talk to your broker.
Some options cash settle, SPX for example. I believe all single stock options settle with delivery though.