Put options in the money at expiry - buying the underlying at the close the day before expiration

[Maverick2608]

I am sorry for the novice question. I do not have much experience with options.

If I am long an in-the-money stock put option at expiry and buy the underlying stock at the close the day before expiration, will brokers typically sell the underlying long stock position at expiration at the strike price when the put option is exercised at expiration?

The motivation for buying the underlying the day before expiration is that I do not want to open a short position (due to tax considerations and risk) and options are typically less liquid than the underlying, so selling the put option just before expiration will involve higher transaction costs than buying the underlying.

 

[destriero]

Yes. They will offset under FIFO and you didn't have a position before the exercise.

 

[zdreg]

Take a piece of paper and calculate your position as of expiration. Learn basic definition of what a Put is.

 

[TheDawn]

I am sorry for the novice question. I do not have much experience with options.

If I am long an in-the-money stock put option at expiry and buy the underlying stock at the close the day before expiration, will brokers typically sell the underlying long stock position at expiration at the strike price when the put option is exercised at expiration?

Yes they will but it doesn't have to be.

The motivation for buying the underlying the day before expiration is that I do not want to open a short position (due to tax considerations and risk) and options are typically less liquid than the underlying, so selling the put option just before expiration will involve higher transaction costs than buying the underlying.

You are not obligated to exercise your put options even if they are ITM (in the money). According to OCC, all options ITM by 1 cent are automatically exercised upon expiry but you can override that. All you need to do is specify to your broker that you do not want to exercise your options upon expiry and the options will expire unexercised no matter how ITM they are. As long as you send this do-not-exercise instruction to your broker before the cut-off time on the expiration date (each broker has a different cut-off time so you would need to check with your broker), your long ITM options will not be auto-exercised. So there is no need to buy the underlying just to cover the potential auto-exercise unless you really do want to invest in or trade the underlying.

Hope this helps.

 

[destriero]

lol listen to MsDawn and send instructions to your broker not to exercise and don't STC. Just donate the premium.

 

[newwurldmn]

lol listen to MsDawn and send instructions to your broker not to exercise and don't STC. Just donate the premium.

Haha.

 

[earth_imperator]

@Maverick2608, you have some misunderstandings in options.
In case of your long options: if you are at negatives at expiration then it means it expires just worthless. Your loss is the premium paid. So, there's nothing more to do, no further obligations...
Try this options tool: https://optioncreator.com/sti7dne

 

[Maverick2608]

@Maverick2608, you have some misunderstandings in options.
In case of your long options: if you are at negatives at expiration then it means it expires just worthless. Your loss is the premium paid. So, there's nothing more to do, no further obligations...
Try this options tool: https://optioncreator.com/sti7dne

As I wrote: "I do not have much experience with options. ... If I am long an in-the-money stock put option at expiry..."