Execution of options After 4pm close

stock777

stock777

It's my understanding that an option can be executed well past the close at 4 PM. IB says they will accept orders up till 4:30.

Has anyone ever done this, and what is the latest an option can be calling in anywhere for exercise? Since they actually settle on Saturday, someone theoretically could get news late Friday of expiry on some very cheap out of the money options, and call in the stock.

It also implies that you don't know for sure that a short option will not be exercised , even if its ootm at the close.
 
I believe the deadline for options exercise notices to be submitted is 5:30 PM. Many firms will have an earlier cutoff so there is enough time for the processing. You will never know for certain what you have been assigned until the clearing house sends out the reports during the overnight batch run.

As for waiting, if news is coming out and/or the after hours markets are active, it doesn't hurt to wait (especially if your options are pinned to a strike) - but don't miss the deadline.
 
I think the best use of this is when the closing price does not reflect after hours news and you wish to force an exercise. I'm not certain which closing price (4pm or 6:30 or 8pm) is used for automatic exercise. If the after hours price looks better than the 4pm close relative to your position, I'd be trying to exercise just to be sure.
 
The Expiration Process
At any given time, an option can be bought or sold with one of four expiration dates. This is indicated by a month and year description. The expiration date is the last day an option exists. For listed stock options, this is the Saturday following the third Friday of the expiration month. Please note that this is the deadline by which brokerage firms must submit exercise notices. You should ask your firm to explain its exercise procedures including any deadline the firm may have for exercise instructions on the last trading day before expiration
 
Equity options trade until 4:02

Options on QQQ's, other ETF's, indices, etc. trade untill 4:15

Caution - in the last 5 or so minutes before trading ceases do not expect to get filled on anything except electronic orders that are guaranteed automatic execution (ie. RAES on the CBOE). So if you want to have more than 20 contracts filled for equities (1000 i believe for ETF's) you had better place the order early or the specialist will just disregard it and say he didn't have time to hedge so he didn't take the order (which is entirely legal and sometimes even true). If you want to play the market close with equity options you need to either submit a market on close order to your broker and trust your specialist to give you a fair fill (ie. use a broker who is a specialist in that option) or use a broker with traders on the floor of the exchange that you can call directly. Unfortunately both of these are not usually possible through discount brokers.

The idea of trading with options on news that was released after the market closes (and the underlying stock ceases or slows trading) is conceptually flawed. Before a specialist in any option will sell/buy an option to/from you, he will hedge his position buy buying or selling the underlying security. If he cant get the shares he needs to hedge then you cant get the option (with the exception of RAES orders, etc.). If he can get the shares, but only at a bad price, then you can get the option, but only at a bad price.

As far as expirations go I really don't know, I have never let anything expire due to the crappy transaction fee's (ie. It's much cheaper to sell the options and buy the stock).
 
Originally posted by stock777
It's my understanding that an option can be executed well past the close at 4 PM. IB says they will accept orders up till 4:30.

Has anyone ever done this, and what is the latest an option can be calling in anywhere for exercise? Since they actually settle on Saturday, someone theoretically could get news late Friday of expiry on some very cheap out of the money options, and call in the stock.

It also implies that you don't know for sure that a short option will not be exercised , even if its ootm at the close.
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A good example of this happened Friday. GMST closed just above $8 and the $10 calls were .30 bid on the close. The market was waiting to hear the results of the patent case. They came after 5:30 PM. The $7.5 calls were probably exercised but GMST did lose the case and the stock this morning is just above $5.

It was possible that the results could have come out around 5:00 EST and as such would have benefitted brokers who allow customers to exercise as close to the 5:30 deadline as possible. Many brokers require a little extra time to get notices in to the OCC by the 5:30 deadline and as such have deadlines before 4:30 EST for their customers.
 
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