Two questions about brokers and settlement.

[raf_bcn]

Hi

Two questions about brokers and settlement. I only have experience with one broker so I don't know if is the same with other.

Imagine I have a bull call that now is deep itm and today is the expiration day.
E.g. call 10 and short call 15 with the underlying at 25.

I know my short call will be auto exercised because is more than 0.01 itm and instead of closing the the entire position I decide to exercise the call 10 I own.
So at 2.00 am est with the work of the clearing house I will have +100 -100 shares.

1_ But I don't have the cash in my acount to purchase the 100 shares of the underlying so I don't know if the broker will allow me to send the order of exercise the call.
I know with IB it is not posible to do that. I don't know with portfolio margin.
Does your broker allows you to do that?


2_ When it is ex dividend date who is shorting a stock must pay dividend. But at what exact time it is settled that obligation ?

Imagine I amb shorting 100 shares the day before it goes ex dividend but I also have 1 itm call and I exercise it that day.
At 2:00 am I will have +100 shares by my exercised call and -100 that I had, so my position will be 0.
Will I have to pay the dividend? I supose I won't but maybe as I had that -100 shares at the end of the session I will must pay the dividend.

If someone knows how exactly works it wouk be very helpful.

thanks.

 

[truetype]

The long & short positions should wash out, but sometimes don't. Check your account the day after expiry to be sure, and call the broker if needed.

 

[spindr0]

1) Check with your broker to see how they handle the insufficient funds issue with the spread that you described.

2) If you are short the shares on the ex-div date, you pay the dividend. it doesn't matter how you got there.

 

[TradingDemystified]

I know my short call will be auto exercised because is more than 0.01 itm and instead of closing the the entire position I decide to exercise the call 10 I own.

Both your long and short positions that are ITM are auto-exercised, there is no need for you to initiate anything and in fact you may make things messier if you do.
I have been in the situation you describe and if you let it go through expiration you come out the next day in the morning with no issues at all (regardless of whether you have the required funds or not since anything you'd have to buy will be covered by your auto-exercised short position (or viceversa)