Sell the call if you can't afford to exercise?

I had a similar issue last year. I had 1000 SPY callspreads expiring which were close to the upper strike and I didn't have nearly enough money to buy 100,000 SPY (about 12MM notional).

My broker said that if both legs got exercised I didn't have any problem. If one leg (my long leg) was in the money, I would have a margin call on monday, but my options would not be abandoned. So I would be taking a weekend punt on a huge notional.
 
Quote from 1a2b3cppp:

Let's look at Jun options for SPY hypothetically.

http://finance.yahoo.com/q/op?s=SPY&m=2011-06

Say someone has $2,000 in their account. That's enough to buy 14 shares of SPY, but they think that SPY is going to go to 150 sometime in May and want to make more money. If they outright bought it, they would have:

14 shares of SPY ($133.64 * 14 = $1,870).

Say they are right, and SPY goes up to $150 per share. Their 14 shares are now worth $2,100 for a gain of $230.

Say instead they decide to buy as many 140 strike call options as they can, currently at an ask price of $0.40. At $40 each, our hero will get 50 options (ignore commissions for now) for a total of $2,000.

Now, say SPY gets to $150 sometime in May. Our hypothetical person decides that they don't want to wait until expiration, so they exercise their options now.

They now have the right to buy 5,000 shares of SPY at $140, which would cost $700,000. Except our guy doesn't have that much money, so it would seem that buying 5,000 shares of SPY is out of the question, right?

If he had the money, he could buy the 5,000 shares and then could immediately sell it for $750,000 (5,000 * 150) netting a profit of $50,000, but what happens here because he doesn't have the money to buy the shares in the first place, even tho he has the right to do so if he wants?

Is his alternative to SELL his call options, and if so, will he get roughly $50,000 for them (so they are going to be priced at roughly $10 each)?

What happens if no one wants to buy his options? Is he screwed?
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" At $40 each, our hero will get 50 options (ignore commissions for now) for a total of $2,000."

more money has been lost in "trading" because of "heroic" action
then nearly all other trading errors.

before even considering trading you should learn the basics of risk
management.
 
Quote from zdreg:

" At $40 each, our hero will get 50 options (ignore commissions for now) for a total of $2,000."

more money has been lost in "trading" because of "heroic" action
then nearly all other trading errors.
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Wow, are you serious? You completely misinterpreted my post.

"Our hero" was just one of many ways I referred to the hypothetical person in my example because I got sick of calling him "they," "our hypothetical person," and "he."

I wasn't talking about "heroic" action or anything else, nor was I condoning the course of action discussed in this thread

before even considering trading you should learn the basics of risk
management.
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What part of my hypothetical question involving option procedures makes you think I don't understand "the basics of risk management"? It wasn't even a question about risk :p
 
Quote from 1a2b3cppp:

So you will never be in a position where you own options that you cannot sell?
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If the bid is 0, it's possible you won't be able to sell. This is more likely when the option is about to expire worthless or almost worthless. The nightmare scenario is described in http://www.elitetrader.com/vb/showthread.php?s=&threadid=51251 . All brokers ought to let you opt to not exercise the option. Most let you do this online, although some may require that you phone them. You should do this if there's any chance at all that you will be exercised and you don't want to hold the resulting stock.
 
Quote from stock777:

AAPL 150's Fri a good example of getting your ass kicked with an option you think wont auto exercise
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I was paper trading options on Emini S&P500 futures on Friday. I sold a 1360/1360 straddle and with about two minutes to go the short put was in the money by about two points IIRC, so I bought them back. Just then the futures did a moonshot and the short calls ended up in the money. I think it closed at 1363+. Lucky thing it was only paper. Still waiting to see if I will be short 10 /ES contracts at 1360 tomorrow.
 
You should always close your trade before the end of Fridays close unless it's well away from the strike price.

The option doesn't technically expire until Saturday, and the closing price at the end of the day is not the price used for options which is determined by the MM at 15 mins after the hour - I got screwed on that big time with the XLF and thinking I was in the clear on some naked puts - got the stock put to me and it tanked on Monday - this was back in 2008.

I'm not an options guru, so someone please correct me if I got some of that wrong.
 
Just because your option is out of the money doesn't mean you won't get exercised. People exercise options all the time if they have mismatched deltas.

If you are within 10 - 20 cents of the money there is no guarantee you will or won't get exercised.

And then of course there is the issue of information coming out.

While options technically expire on saturday I believe you have to make your elections by 5:30 on Friday.

Better to close out the position than take a punt on dollars for a few cents cost.
 
Quote from newwurldmn:

Just because your option is out of the money doesn't mean you won't get exercised. People exercise options all the time if they have mismatched deltas.

If you are within 10 - 20 cents of the money there is no guarantee you will or won't get exercised.

And then of course there is the issue of information coming out.

While options technically expire on saturday I believe you have to make your elections by 5:30 on Friday.

Better to close out the position than take a punt on dollars for a few cents cost.
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Newwurldmn is absolutely correct.

Remember that you can trade stocks after hours as well and have until 4:30 central to exercise. So you may buy GLD, AAPL or whatever stocks that have been very volatile, after hours and then exercise your options later that wouldn't have been a good exercise at 3:15
 
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