Everything I Need to Know Before Buying E-mini S&P 500 (ES) Options

Gotcha · Jan 23, 2017

prc117f said:
Actually that is not correct. Unless you call your broker and explicitly provide a no exercise instruction you can lose more if on a Friday night your long option is a cent or more in the money and your long option position is exercised automatically. You can end up short a lot of stock or long a lot of stock over the weekend.

So you have to close out the position or call your broker and tell them you do not want to exercise your long option position.

http://www.cboe.com/learncenter/concepts/beyond/expiration.aspx

What is "automatic exercise" of an option?
The Options Clearing Corporation has provisions for the automatic exercise of certain in-the-money options at expiration, a procedure also referred to as "exercise by exception." Generally, OCC will automatically exercise any expiring equity call or put in a customer account that is $0.01 or more in-the-money, and an index option that is $.01 or more in-the-money. However, a specific brokerage firm's threshold for such automatic exercise may or may not be the same as OCC's.

Thanks for the clarification. I was only looking at it from the point of view of day trading it, and having OCO orders set, and also making sure to be flat by the end of the day if neither was hit. But certainly, saying that the most you could lose would be incorrect if you haven't closed your position as you point out, and this is something I haven't read up on since it was never my intention to take a trade this far.

carrer · Jan 24, 2017

prc117f said:
Actually that is not correct. Unless you call your broker and explicitly provide a no exercise instruction you can lose more if on a Friday night your long option is a cent or more in the money and your long option position is exercised automatically. You can end up short a lot of stock or long a lot of stock over the weekend.

So you have to close out the position or call your broker and tell them you do not want to exercise your long option position.

http://www.cboe.com/learncenter/concepts/beyond/expiration.aspx

What is "automatic exercise" of an option?
The Options Clearing Corporation has provisions for the automatic exercise of certain in-the-money options at expiration, a procedure also referred to as "exercise by exception." Generally, OCC will automatically exercise any expiring equity call or put in a customer account that is $0.01 or more in-the-money, and an index option that is $.01 or more in-the-money. However, a specific brokerage firm's threshold for such automatic exercise may or may not be the same as OCC's.

Are you saying that when it is automatically exercised when the price is just above the strike price on Friday night, you will lose more due to commissions?

Because I see no other reason that one will be losing exercising a long call option above the strike price.

tommcginnis · Jan 24, 2017

carrer said:
Are you saying that when it is automatically exercised when the price is just above the strike price on Friday night, you will lose more due to commissions?

Because I see no other reason that one will be losing exercising a long call option above the strike price.

Once upon a time, {blah blah blah, I wuz exercised (long call, or short put, don't remember, doesn't matter}, and on Monday, after a *fantastic* large hit to cash (and me going "What the *hellllllll?!?!?!?"), I realized net liq. was rising. Now, I'm scrambling between portfolio pages and trading pages and the "trades" page (Thursday and Friday had been LONG days, with outsized records through which to sift), and I *finally* realize where the dust had settled, and what had happened, and why I was long -- I think it was futures -- musta been ES......(I had missed that on Sunday open, then! WOW.).........

The market was due (I thought) a downturn. It was rising. I GTFO within the first 5 minutes, and made a fair wage of it all. ACCIDENTALLY. (And, considering that I missed what had transpired til Monday open, NEGLIGENTLY.) And to top it off, the market turned right as I exited, and plunged down for the rest of the day.

"One of the worst things a trader can do, is make money off a bad trade." I chastised myself plenty on that one, I can tell ya.

In any event, I made money, THAT TIME. And had I held for 5 minutes further, would've lost bigly big dollars. DON'T do that.

CBC · Jan 24, 2017

The ES options are quoted in points.. each point is worth $50. So its not $74, its 74 points.

Secondly, please don't use the name option express here on ET.

They are the most over-priced broker out there. Especially for online trading. its probably around the $29 mark for placing a round trip order :vomit:

.

Go and sign up with AMP for ES options, they only just made them available... so good news there.

.

Steven Leeds · Jan 25, 2017

CBC said:
...please don't use the name option express here on ET.

I agree. Not sure how they (optinsXpress) stay in business charging charging what they do. Perhaps because they're a "Proud Part of Charles Schwab." In any case they are way over priced IMHO.

Best

CBC · Jan 25, 2017

prc117f said:
Actually that is not correct. Unless you call your broker and explicitly provide a no exercise instruction you can lose more if on a

You are not completly correct either. You can't ring ur broker and not get the options auto- exercised. ES weeklies, EOM don't have contrarian orders allowed. Only the 3 month options allow contrarian orders. If you are holding ITM past expiry then you get exercised. You either exercise or you get auto-exercised. Big problem with this of course is that you may get a ES contract which may gap against you over the weekend. I think this is the biggest issue surrounding this. It bothers me.

I was just about to write a new thread on this. Because it goes against the definition of an option contract. Option buyers by definition AREN'T obligated.

prc117f · Jan 26, 2017

CBC said:
You are not completly correct either. You can't ring ur broker and not get the options auto- exercised. ES weeklies, EOM don't have contrarian orders allowed. Only the 3 month options allow contrarian orders. If you are holding ITM past expiry then you get exercised. You either exercise or you get auto-exercised. Big problem with this of course is that you may get a ES contract which may gap against you over the weekend. I think this is the biggest issue surrounding this. It bothers me.

I was just about to write a new thread on this. Because it goes against the definition of an option contract. Option buyers by definition AREN'T obligated.

I am talking about Equity options and I have actually called my brokers when to instruct them not to exercise my long options to avoid pin risk on a long option at the end of the day. I do not trade other types of options what I am talking about is only CBOE Equity options.

prc117f · Jan 26, 2017

carrer said:
Are you saying that when it is automatically exercised when the price is just above the strike price on Friday night, you will lose more due to commissions?

Because I see no other reason that one will be losing exercising a long call option above the strike price.

Lets say you were long 10 contracts for the SPY 229 call. On friday it is in the money by 2 pennies. Now you are long 1000 shares at 229 over the weekend but something happens on sunday (ie geopolitical event etc.) come Tuesday premarket SPY gaps to 227.50 now you are down 1500 dollars on your long stock position and you are forced to make a hard choice monday morning.