ITM put Exercise Question

[UVXY20]

Are brokers or the OCC obligated to exercise an ITM put into cash at the strike price if shares are not available to short, which is what usually occurs if the holder does nothing, right?

 

[Robert Morse]

The OCC does not look to see if the shares are ETB or even Threshold. They are contractually obligated to follow their rules and your contract.

 

[UVXY20]

So, in such a situation, I can do nothing and automatically get the cash equal to the strike price?

 

[Robert Morse]

No. If you do not want to be short stock after expiration, sell your Put before or file an exception and not exercise and lose the premium.

So, in such a situation, I can do nothing and automatically get the cash equal to the strike price?

 

[UVXY20]

Is there any reason I would want to lose the premium?

What if no short stock exists?

 

[Robert Morse]

Not because of the available to borrow. You can buy the shares back the next morning.

Is there any reason I would want to lose the premium?

What if no short stock exists?

 

[UVXY20]

The OCC does not look to see if the shares are ETB or even Threshold. They are contractually obligated to follow their rules and your contract.

So, if you do nada, you are short shares — briefly, technically, suddenly, whatever — even if there are no shares available for shorting?

How does that happen? Is it just an accounting entry?

But what if I don’t cover? These phantom shorts live on?

 

[Robert Morse]

If your broker can’t borrow the shares, you will at some point have a REG SHO buy in. Also, many hard to borrow shares are expensive to carry over night.

 

[UVXY20]

Ah, interesting. Didn’t know this. Thanks much for your erudition, once again.

 

[wxytrader]

The OCC does not look to see if the shares are ETB or even Threshold. They are contractually obligated to follow their rules and your contract.

What if a call expires in the money and you don't have the shares to deliver?