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Playing after hours stock movement with expiring options.
- Thread starter FSU
- Start date
Automatic exercise of an option is based on the 4pm et closing price of the stock on its primary exchange. This is typically done with a closing auction.Now that last trade can be an anomaly, so the rules are caveated with this:
Determining Settlement Prices on Specific Markets
Typically, the settlement price is set by determining the weighted average price over a certain period of trading, typically shortly before the close of the market.
But either way, what happens after 4PM... has zero effect on determining the settlement price.
Again, the price used for automatic exercise is not relevant to this strategy, as you can override this automatic exercise or exercise an out of the money option as long as you give notice before 530pm et.
Not on expiration day. You can do that Thursday, but not Friday.Thats not how it works. Automatic exercise of an option is based on the 4pm closing price. Option holders have until 530pm et (or slightly earlier based on their brokers guidelines) to over ride this automatic exercise or to exercise an out of the money option. This is where the opportunity is. If the stock drops after hours, you can buy the stock and then exercise the option. So in the case of SMCI, if you bought the 800 puts at .30, and the stock dropped to 790, you would buy the stock and then exercise your 800 puts. In practice, any purchase below 799.70 before 530pm would be a profit and you have the opportunity to make even more money if the stock rallies.
Lol, you are 100% wrong here. On expiration Friday you have until 530pm (as mentioned many brokers will have a slightly earlier cutoff time to meet this OCC deadline) to exercise an out of the money option or cancel the exercise of an in the money option. This is why you will see slightly out of the money options on expiration day trade with a premium at the close.Not on expiration day. You can do that Thursday, but not Friday.
I literally have been doing this trade for 35 years. This is really basic stuff.
Yes, but the price for the contract settlement is based on the underlying's closing price at 4pm et on Friday. I am 99% sure an otm option dies at 4PM on Friday. Now if SMCI dropped to $700 right before the bell, your option expired itm. Say the stock continues down to $600 after the bell... assuming you have made the right phone calls, and you have the buying power of course, you can buy the stock at $600 and exercise the option before 5:30. The writer has to buy the stock from you at $800. But that is for itm at close only. If the option is otm at the bell, it's dead. Only itm options live on until Saturday at 11:59 AM.Automatic exercise of an option is based on the 4pm et closing price of the stock on its primary exchange. This is typically done with a closing auction.
Again, the price used for automatic exercise is not relevant to this strategy, as you can override this automatic exercise or exercise an out of the money option as long as you give notice before 530pm et.
Looks like the IBKR cutoff time is 525pm et.Would this work with IBKR or is their cutoff at 4pm?
Delivery, Exercise and Corporate Actions | Interactive Brokers LLC
Ok, I mean I could certainly be wrong on this. But assuming what you say is correct, if I have a $50 put on stock xyz, and xyz closes at $52, but after the bell on Friday it drops to $40 on some unexpected news... I now own a profitable contract if I jump thru the hoops by 5:30 or whatever time the broker says?Lol, you are 100% wrong here. On expiration Friday you have until 530pm (as mentioned many brokers will have a slightly earlier cutoff time to meet this OCC deadline) to exercise an out of the money option or cancel the exercise of an in the money option. This is why you will see slightly out of the money options on expiration day trade with a premium at the close.
I literally have been doing this trade for 35 years. This is really basic stuff.
Man... I'm almost 100% sure this is incorrect. But I'll get a definitive answer for sure.Ok, I mean I could certainly be wrong on this. But assuming what you say is correct, if I have a $50 put on stock xyz, and xyz closes at $52, but after the bell on Friday it drops to $40 on some unexpected news... I now own a profitable contract if I jump thru the hoops by 5:30 or whatever time the broker says?
Yes, but the price for the contract settlement is based on the underlying's closing price at 4pm et on Friday. I am 99% sure an otm option dies at 4PM on Friday. Now if SMCI dropped to $700 right before the bell, your option expired itm. Say the stock continues down to $600 after the bell... assuming you have made the right phone calls, and you have the buying power of course, you can buy the stock at $600 and exercise the option before 5:30. The writer has to buy the stock from you at $800. But that is for itm at close only. If the option is otm at the bell, it's dead. Only itm options live on until Saturday at 11:59 AM.
I'm not sure what else I can say. You have been posting here as long as I have and I like reading your comments. Not trying to fight with you, but you are wrong here. This is a trade I have done many many times. I posted the idea as I thought others might be interested.
You have a right to exercise your out of the money options (or cancel an automatic in the money exercise) on expiration Friday until 530pm et (or slightly earlier based on your broker). Thats why this play works. Automatic exercise is based on the 4pm closing price.
Also to add, options no longer technically expire on Saturday, they now expire at 1159pm on Friday night. This change was made 2015.