Does anyone know what happens when a stock (like HAR on Friday) is halted on options expiration day, and you do not have a chance to close your position before the end of trading day? I am just curious, because these are some types of trades I could easily be in, hoping to close before market closes. What would become of my in-the-money puts, with nothing like the amount of capital needed to exercise the options?
Question on Options Expiration and Trading Halt: HAR
- Thread starter neke
- Start date
Bad things could happen, even with long options, due to auto-exercise. For example, IB will simply close you out Monday at whatever price: http://www.elitetrader.com/vb/showthread.php?s=&threadid=51251
I'm sure the info you need (buried deeply?) is in the "Characteristics and Risks" statement from OCC.
http://www.optionsclearing.com/
I'm sure the info you need (buried deeply?) is in the "Characteristics and Risks" statement from OCC.
http://www.optionsclearing.com/
Funny you should mention HAR.
Less than 1 hour before the close, with the stock trading over 88, the Sep 85 puts still had around .25 - .40 value. Thinking both short -term (selling premium) and long-term (maybe HAR was not a bad buy at 84.7 or so), I placed a limit order to sell some 85 puts. No takers, and then the contracts were trading at .05 or so.
I cancelled my order. The stock was HALTED! In extended trading, I believe it was trading in the low 80s. Buyers of the contracts at .05 would have made 60x their money if they bought in extended hours and were able to exercise their puts!!!
AZD
Less than 1 hour before the close, with the stock trading over 88, the Sep 85 puts still had around .25 - .40 value. Thinking both short -term (selling premium) and long-term (maybe HAR was not a bad buy at 84.7 or so), I placed a limit order to sell some 85 puts. No takers, and then the contracts were trading at .05 or so.
I cancelled my order. The stock was HALTED! In extended trading, I believe it was trading in the low 80s. Buyers of the contracts at .05 would have made 60x their money if they bought in extended hours and were able to exercise their puts!!!
AZD
Thanks for the ET link. From the discussions there, it appears the broker would exercise the options, and wait till Monday morning to close the positions at the market price, after creating a big Reg-T margin call, and a restriction might be placed on my account for 90 days or so. Still an uncomfortable situation, even with the gain.
http://www.optionsclearing.com/market/infomemos/2007/sep/23576.pdf
Here's what it means. For example, let's say HAR was at $102 and it stopped trading mid-day expiration Friday. It's trading at $85 OTC Friday afternoon. If you own the 100 call, or the 95 or 90 call, you do not have to exercise them - call your broker and tell them you do not want to - "Exercise by exception". If one owned the "worthless" 95 put, you cloud buy stock at $85 and exercise your put, effectively locking in $10.
3 morals to this story (probably more):
1. If you are short an option, don't assume anything (not only the puts, but I'll bet some people long stock and short 95 calls are in for a surprise when they're not assigned)
2. If you sold an option and it's trading at $0.05 with time to go until expiration, close it out
3. If you are long a worthless option, stay awake on expiration Friday until an hour after the market closes - something might happen
kny 3
Here's what it means. For example, let's say HAR was at $102 and it stopped trading mid-day expiration Friday. It's trading at $85 OTC Friday afternoon. If you own the 100 call, or the 95 or 90 call, you do not have to exercise them - call your broker and tell them you do not want to - "Exercise by exception". If one owned the "worthless" 95 put, you cloud buy stock at $85 and exercise your put, effectively locking in $10.
3 morals to this story (probably more):
1. If you are short an option, don't assume anything (not only the puts, but I'll bet some people long stock and short 95 calls are in for a surprise when they're not assigned)
2. If you sold an option and it's trading at $0.05 with time to go until expiration, close it out
3. If you are long a worthless option, stay awake on expiration Friday until an hour after the market closes - something might happen
kny 3
Spindro,
This is part of the quote from the OCC
"...HAR Expiration Exercise Procedures
September series of HAR options expire September 22, 2007. For purposes of calculating a price for use in expiration processing, OCC WILL USE THE LAST AVAILABLE HAR PRICE FROM SEPTEMBER 21, 2007. OCC anticipates expiring HAR options will be processed in the normal fashion this weekend, including the use of the customary in-the-money thresholds to effect exercise of expiring HAR positions. ..."
Read that quote well. "OCC will use the last available HAR price from September 21..." Guess what? The last available price from the primary market could be $102 or $100, not $85. If you own a 95 call, the OCC would say it's $5 or $7 I-T-M. You must contact your broker to NOT exercise the 95 or 100 call. You must call your broker to exercise your long 100 or 95 put because they were O-T-M with the stock at $102.
I'm not trying to beat you up, there will be people not assigned on calls or assigned on puts that may have a bit of a surprise Monday morning. I hope it's not you.
KNY 3
This is part of the quote from the OCC
"...HAR Expiration Exercise Procedures
September series of HAR options expire September 22, 2007. For purposes of calculating a price for use in expiration processing, OCC WILL USE THE LAST AVAILABLE HAR PRICE FROM SEPTEMBER 21, 2007. OCC anticipates expiring HAR options will be processed in the normal fashion this weekend, including the use of the customary in-the-money thresholds to effect exercise of expiring HAR positions. ..."
Read that quote well. "OCC will use the last available HAR price from September 21..." Guess what? The last available price from the primary market could be $102 or $100, not $85. If you own a 95 call, the OCC would say it's $5 or $7 I-T-M. You must contact your broker to NOT exercise the 95 or 100 call. You must call your broker to exercise your long 100 or 95 put because they were O-T-M with the stock at $102.
I'm not trying to beat you up, there will be people not assigned on calls or assigned on puts that may have a bit of a surprise Monday morning. I hope it's not you.
KNY 3