Fly - Expire ITM or Close

J

justrading

Had 5 SLV Flies 18-20-22 expiring today, Bid -0.01 Ask 0.14 (??), no takers at anything other than 0.00, UL 22.40 last.

Should have closed yesterday, waiting for the pullback that never came, kindest way to describe it is big eff up.

I've been assigned before but it was during the week and I could close the position the next day.

Question I have is;

if left to expiration/exercise/assignment, would the transaction be on a contra or offset basis, ie no actual shares ever reach the account, options just offset each other, or,

would the share transaction be effected short/long with position closed in the after hours market today, or,

would the share transaction be effected only on Monday, meaning I would carry weekend risk, ie gap down leaving the shares of the 22 leg negative.

No margin concerns, enough funds to cover the 20 lots so that is not the issue, I want to understand the risk factor.

In terms of cost I'm on flat rate so if charged for the 20 lots I reckon that would be $10 at $0.005 per share.

Comm to close was $18.43, got fed-up waiting so closed out at 0.00, which is what it's worth anyway.

Price of my ticket for the 2nd rugby match on TV, missed the first one. :)

Note: IB Knowledge base does not cover this, nothing in 3 Google searches expressly addressed what I'm asking.

http://ibkb.interactivebrokers.com/article/1718
 
Bit brain dead today, sorry.

If the shares hit the account at the contracted prices and offset accordingly, no risk from underlying.

That only leaves the cost aspect.
 
The main issue is a cost one. If you have 20 butterflies, that is 80 contracts that will be exercised/assigned. This could cost you more than simply selling the butterfly at 0. Other than this, everything should come off your sheets with no problems

If you were short the fly, instead of long it there might be a bit more risk. In that case if SLV traded below 22 after hours on Friday, you may not be assigned on your short calls. Since you are long the fly, you won't have to worry as your long 22's will be exercised based on the closing price.
 
Quote from FSU:

The main issue is a cost one. If you have 20 butterflies, that is 80 contracts that will be exercised/assigned. This could cost you more than simply selling the butterfly at 0. Other than this, everything should come off your sheets with no problems

If you were short the fly, instead of long it there might be a bit more risk. In that case if SLV traded below 22 after hours on Friday, you may not be assigned on your short calls. Since you are long the fly, you won't have to worry as your long 22's will be exercised based on the closing price.
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Interesting point about the short spread. I have not been trading credit spreads, but I know I would not like to be in a position where there may or may not be weekend risk based on a decision that is out of my hands.

IB does not charge for exercising US stock and equity options, only non-US and FOP, so the cost would be a comparison of share transaction cost vs selling to close.

Thanks chaps, appreciate the advice.
 
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