SPX Options Settlement Risk

[ReadyTrader]

I have a question about SPX options settlement risk for PM-settled weeklies (not AM-settled).

Specifically, if I'm buying spreads (say a bull call spread), is it safe to hold everything (all legs) to expiration, or should I be trying to sell the spread (or at least buy back the short leg) to avoid any odd behavior at settlement?

Given that everything is cash settled, it would be ideal if the market just closed at 4p on settlement day (again, just considering PM-settled weeklies, nothing AM-settled) and all prices were fixed at that point and then net cash settlements were done, such that a spread would be worth whatever it was worth but with no risk of any demand to pony-up hundreds or thousands of dollars.

I'm used to closing spreads on expiration day for equities to avoid odd assignment risk and any odd behavior between market close and official settlement time. I'm worried that I'm missing something with PM-settled weeklies.

Here, I'll also make it a poll.

 

[Sig]

I have a question about SPX options settlement risk for PM-settled weeklies (not AM-settled).

Specifically, if I'm buying spreads (say a bull call spread), is it safe to hold everything (all legs) to expiration, or should I be trying to sell the spread (or at least buy back the short leg) to avoid any odd behavior at settlement?

Given that everything is cash settled, it would be ideal if the market just closed at 4p on settlement day (again, just considering PM-settled weeklies, nothing AM-settled) and all prices were fixed at that point and then net cash settlements were done, such that a spread would be worth whatever it was worth but with no risk of any demand to pony-up hundreds or thousands of dollars.

I'm used to closing spreads on expiration day for equities to avoid odd assignment risk and any odd behavior between market close and official settlement time. I'm worried that I'm missing something with PM-settled weeklies.

Here, I'll also make it a poll.

Those are cash settled European options, there are none of the risks you're worried about, although you're right to ask the question given the non-obvious way things like the AM-settled SPX options expire. I've been letting them cash settle for years now with no unexpected surprises. The only thing that may be a little odd is that the settlement price isn't known until some time after the close. And the final SPX close price actually changes for several minutes after the close if you watch carefully on your quotes. I'm guessing this is because of late reported trades but don't actually know the real reason, would be curious is anyone else does?

 

[ReadyTrader]

Those are cash settled European options, there are none of the risks you're worried about, although you're right to ask the question given the non-obvious way things like the AM-settled SPX options expire. I've been letting them cash settle for years now with no unexpected surprises. The only thing that may be a little odd is that the settlement price isn't known until some time after the close. And the final SPX close price actually changes for several minutes after the close if you watch carefully on your quotes. I'm guessing this is because of late reported trades but don't actually know the real reason, would be curious is anyone else does?

Thanks for the info. That's great to know. Yes, I'm not worried about late trades being recorded and therefore influencing the settlement price. In other words, getting the book keeping to catch up is fine. I just don't want to have any risk exposure other than the defined risk associated with the spread itself. Maybe "any risk exposure" is a bit too strong (counter party?) but basically nothing like what can happen with equities options where unknown parties can execute decisions hours after market close on expiration day that can bite me. It sounds like PM-settled weeklies eliminate all that potential drama.

 

[Sig]

It sounds like PM-settled weeklies eliminate all that potential drama.

They do and that's one of the primary reasons I trade them!

 

[ReadyTrader]

They do and that's one of the primary reasons I trade them!

Perfect. Thank you for your help. Much appreciated!