Option expired in the money without execution as stock suspended

L

liangcai

I just found that my short options (strike $20) for LK got expired without being executed. Trading on LK was suspended a few weeks ago due to their financial scam. This was new to me and I was still thinking it will get executed automatically. I talked to IB customer service and they confirmed that those options expires without automatic execution per OCC memo. I did see they sent out a notification email three days before the expiration date. This is an expensive lesson for me. I would like other people also learn from my lesson.

But on the other hand, I am shocked that IB as a major broker would let it expire without doing anything. This is essentially wait and see your customer's money burning. They only send out one message, two weeks after the OCC memo, three days before the expiration. Does someone have any comment whether I should ask IB to do something?
 
It is not clear to me what happened to you. LK was halted at 4.39. You say your short options where not executed ( I assume you mean assigned), the 20 strike. If these were puts, it would be fantastic for you, it would mean you wouldn't need to buy the stock at 20. If they were calls you were short , they would have expired worthless anyway.
 
Go to the OCC site and check the informational memos. It appears it was exercise by exemption - which implies no auto-exercise. Your broker should have communicated with you.
My reading - so you may want to print it out and go over it.
 
Sounds to me like you got lucky. As the other posters said, short option not exercised means you keep the premium. What is not to like? Isn't that exactly what you wanted when you sold your option?
 
sounds to me he really means he bought a put and it expired, but he was expecting to be assigned 100 share short @$20. hence the "expensive lesson".
 
EsKiller said:
sounds to me he really means he bought a put and it expired, but he was expecting to be assigned 100 share short @$20. hence the "expensive lesson".
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I think you are right. So the “expense” was not being able to sell the stock or close the option for the higher price.
 
I bought put option, so there is no premium. when the ITM put option does not get exercised or sold, I lose the money. My questions is whether it is reasonable for IB to just wait it to expire without trying harder to reach out to me? I feel it is hard to understand the reason behind the "no auto exercise" rule? trying to protect the current stock holder? Why cannot IB just exercise it for me? what is the risk they are taking? After all, they are only sending me one notification message among hundreds of other messages.
 
liangcai said:
I bought put option, so there is no premium. when the ITM put option does not get exercised or sold, I lose the money. My questions is whether it is reasonable for IB to just wait it to expire without trying harder to reach out to me? I feel it is hard to understand the reason behind the "no auto exercise" rule? trying to protect the current stock holder? Why cannot IB just exercise it for me? what is the risk they are taking? After all, they are only sending me one notification message among hundreds of other messages.
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Ok, so you were long the put and it didn't get exercised.

The OCC cancelled the auto exercise rule here because the stock was halted. There is unique risk exercising options in a halted stock. If you exercise puts, you get short stock (if you aren't long already). Short stock in halted stock has potential problems. You may not be able to cover and may be stuck paying hard to borrow fees. With calls or puts, you could be in a situation where you can't get out after an exercise. So it makes sense the OCC did this.

So you ask, should IB have just exercised for you anyway? Absolutely not. This is a decision you would have to make with all the potential problems. You say they sent you an information memo about it that you didn't read, but wonder it they should have sent you more or called you? What they did seems reasonable. I'm sorry you lost money here, but its on you, not IB.
 
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