OTM option expiration

H

heech

Hi,

Maybe this question belongs in the energy futures section... since it relates to heating oil. In any case...

On the HO options expiring yesterday, I had two short *OTM* options that were subsequently exercised. Strike was 1.95, and settlement was 1.9508. (And market traded above 1.95 consistently after settlement.)

I was surprised. I've seen ITM options right at the market abandoned before, but I didn't even know there was a procedure for exercising OTM options. (And don't ask me for the logic behind the move...)

So, basic question:

1) is this pretty common?
2) and a less answerable one... why!?
 
Sometimes it's optimal to exercise suboptimally... Where was the contract trading at the time? For instance, in a rather extreme example, if the contract was 1.94/1.97 in the mkt, exercising puts suboptimally at 1.95 would have been a good idea. This is just one of the possibilities. Others would depend on the exact mechanism of determining the expiry px and there's a few scenarios I can think of.

I have done this in the past (not in energy futs, obviously), but it's not too common, as you have to be smack on the strike.
 
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