What happens when the closing is equal to strike ?
- Thread starter SumZero
- Start date
Robert Morse
Sponsor
No. Make sure you look at the close of the primary, not last sale from all markets. If you are not sure, call your broker.
http://www.cboe.com/education/getting-started/quick-facts/expiration-exercise-assignment
What is "automatic exercise" of an option?
The Options Clearing Corporation has provisions for the automatic exercise of certain in-the-money options at expiration, a procedure also referred to as "exercise by exception." Generally, OCC will automatically exercise any expiring equity call or put in a customer account that is $0.01 or more in-the-money, and an index option that is $0.01 or more in-the-money. However, a specific brokerage firm's threshold for such automatic exercise may or may not be the same as OCC's.
http://www.cboe.com/education/getting-started/quick-facts/expiration-exercise-assignment
What is "automatic exercise" of an option?
The Options Clearing Corporation has provisions for the automatic exercise of certain in-the-money options at expiration, a procedure also referred to as "exercise by exception." Generally, OCC will automatically exercise any expiring equity call or put in a customer account that is $0.01 or more in-the-money, and an index option that is $0.01 or more in-the-money. However, a specific brokerage firm's threshold for such automatic exercise may or may not be the same as OCC's.
Thanks Robert, useful alert about the primary.
My broker is IB and I see that they have the primary identified if we select Financial Info over a symbol. Not sure, though, if I can check the official closing price of the exchange without calling them (of course I can check it afterwards, but I'm talking about knowing it quickly on those situations when the stock price, in the last seconds, is just around the strike).
Happened that to me today on COTY at 11. Not a big deal, anyway, small stuff. I was just curious what was the rule.
Thanks
My broker is IB and I see that they have the primary identified if we select Financial Info over a symbol. Not sure, though, if I can check the official closing price of the exchange without calling them (of course I can check it afterwards, but I'm talking about knowing it quickly on those situations when the stock price, in the last seconds, is just around the strike).
Happened that to me today on COTY at 11. Not a big deal, anyway, small stuff. I was just curious what was the rule.
Thanks
Just to clarify - this condition is called "pin risk" and yes you won't be auto-exercised, but you may still be manually exercised if the stock moves after hours. It's a pretty unfair advantage that MMs have the ability to exercise after your broker's desk may have left.
CBOE even warns about it in the link "
If my short equity option closes exactly at-the-money on expiration Friday will I be assigned?
This is entirely possible, though not predictable. On occasion, option professionals will exercise expiring contracts that are exactly at-the-money at expiration to acquire or sell underlying shares for adjusting their option risk after the close of trading."
This can also occur because of heavily discounted trade at the bid near the close if the bid was well below parity
In my experience, unless the stock craters after the close there is a pretty decent shot of exercise. Was it "TOO EXPENSIVE" to buy back - was the even a market?
CBOE even warns about it in the link "
If my short equity option closes exactly at-the-money on expiration Friday will I be assigned?
This is entirely possible, though not predictable. On occasion, option professionals will exercise expiring contracts that are exactly at-the-money at expiration to acquire or sell underlying shares for adjusting their option risk after the close of trading."
This can also occur because of heavily discounted trade at the bid near the close if the bid was well below parity
In my experience, unless the stock craters after the close there is a pretty decent shot of exercise. Was it "TOO EXPENSIVE" to buy back - was the even a market?
Open Time & Sales, then go to settings and select "Exchange and Condition." The closing print is the one with condition 6. For COTY today it was 555,730 shares at 11.00.
Yes OCC allows for options to be exercised until 5:30 PM EST. It's OCC's fault. It extends the deadline time to accommodate the after-hour trading. If it has the same cutoff time as the brokers, this wouldn't have happened. This is an unfair advantage for us retail traders indeed because MM's can play all kinds of games to push the price one way or another just to get above/below their strikes to exercise. The only way that we can do to protect us against this is to close the options when it has no value but we can never close the option at 0; it's always at residual value of at least 5 cents. So that's 5 cents of basically free money to the MM's for every unit of options one holds.
Surprised that nobody has complained about this to OCC. I mean if a stock is allowed to trade in AH, everybody not just the MM should be allowed to exercise against it. We shouldn't be limited to the exercise deadline set by the broker.
Robert Morse
Sponsor
Well if you had Lightspeed Trader you would look at the time and sales for the NYSE, as it is a NYSE listed stock.
[QUOTE=" It's a pretty unfair advantage that MMs have the ability to exercise after your broker's desk may have left.[/QUOTE]
There are brokers that will allow retail customers to exercise up to the 530et deadline. Not just a MM thing. My broker (Eroom/Apex) allows it up to 530, with "best efforts' after 5:15. This can provide some good trading opportunities, even for a retail trader, as it allows you to potentially trade stock for an hour after the close without any risk, depending on your position.
There are brokers that will allow retail customers to exercise up to the 530et deadline. Not just a MM thing. My broker (Eroom/Apex) allows it up to 530, with "best efforts' after 5:15. This can provide some good trading opportunities, even for a retail trader, as it allows you to potentially trade stock for an hour after the close without any risk, depending on your position.
There are brokers that will allow retail customers to exercise up to the 530et deadline. Not just a MM thing. My broker (Eroom/Apex) allows it up to 530, with "best efforts' after 5:15. This can provide some good trading opportunities, even for a retail trader, as it allows you to potentially trade stock for an hour after the close without any risk, depending on your position.[/QUOTE]
Does this only work if the stock closes at exactly the strike, or can you even opt to exercise an option that was quite a bit OTM at the market close but in after hours trading becomes ITM?
Doesn't matter whether the option was in the money or not. I can file a "exercise or do not exercise" request for any option. For example, say AAPL is trading at 170.05 just before the close on expiration. You buy the 170 puts for .05. Stock closes at 170.05 (so if you do nothing your put expires worthless). You have until 530 to buy the stock and trade it against your puts. Buy it at 169.80 after hours and you make .15 (if you exercise your puts) , but you can then offer it out higher and continue to scalp the stock until the deadline. If you are still long the stock, you file an exercise request on your long puts.
Basically what this does is allow you a cheap way to be long premium and scalp stock from 4pm to 530pm.