Quote from spindr0:
OK, expiring options that are OTM cost you a nickel (maybe even a penny or two) if you buy them back at expiration. So they're almost zero at expiration. LOL.
Quote from forex-forex:
I just noticed a typo....the calls are not bought back to close the position. They are SOLD to close the position.
Quote from spindr0:
LOLOLOLOLOL !!!!
his options were OTM and jumped into ITM at the very end of expiration Friday.why is it that he had long calls (with no stocks), when they expire otm my understanding is that they are worthless and if they expire itm like in the GOOG guys case they are worth something and can be sold, so why is it that his expired ITM and they got "automatically exercised" and then he owes 9.2K?? i don't understand how this happened
the guy mentioned that he uses IB account.What do you do in his case if there is no bid for the option?
\Quote from sogodo:
his options were OTM and jumped into ITM at the very end of expiration Friday.
So, Monday, he was exercised.
A call is the right (not obligation) to buy stock at strike price. But there is the special rule of autoassignment working in the moment of expiration. Even just 1 cent or something like this can make a huge difference, becuase this particular cent divides OTM and ITM status and causes autoassignment.
the guy mentioned that he uses IB account.
As far as I know, IB provides very convenient mechanism to avoid autoassignment -- all you need to do is to check the proper checkbox somewhere in options menu to avoid it.
The guy did not do this, because he was absolutely sure that his option will expire worthless, or did not know about this possibility.
But volatility at the end of week could be severe. It's better to check the mentioned checkbox in IB to avoid this disaster.
Quote from staffpro:
what if i am not with IB, and as far as i know i don't have that auto assignment option, but i will check tonight
You can call any broker and tell them NOT to exercise any specific option that you own. If an option is close to being in the money, you can call them late in the trading day and issue that same instruction. And if you wind up selling that call, don't worry about it. If you don't own it, it cannot be exercised and you don't have to cancel your DO NOT exercise notice.
what if the above happens (the option jumps from otm to itm ah) then what happens to the options if there is no autoassignment?
If there is no auto assignment, then it's up to the option owner to call his broker and tell them DO exercise an apparently OTM option. The professional traders will exercise and some individual investors will not.
Assignment notices are issued randomly. Thus, when you see your account Monday, part of the time you will be assigned and part of the time you will not.
What should you do if there is no bid for your long call option?
Make an offer anyway. You never know if someone will buy it after you enter the order.
i always thought this whole "lose more than premium you payed" only pertains to if you are like short puts or calls covered or naked.
Rules changes alter the game. This auto exercise is (IMHO) just crap to help brokers make extra money from their clients by charging fees for exercise. Then another fee to unload the stock position.
At least IB makes no such charge.
Mark
Quote from staffpro:
thankyou dagnyt and forex-forex for clearing those things up for me.
that goog guy must have a huge account for $448,000 worth of stock to be bought and placed into his account lol...
Quote from MTE:
That's whole point of options, you don't need that much money to control those 1600 shares, and that's why IB sold the shares, the guy didn't have a huge account and the 448K worth of stock caused a margin call and a forced liquidation.
Quote from staffpro:
so regardless of account size those shares were obviously bought on margin and his account could have been alot smaller. And when those shares were bought he was probably way over the 3:1 buying power at most brokers and hence the forced liquidation + margin call. i see... thankyou