What if there are more calls outstanding than shares available
- Thread starter traider
- Start date
What if someone buys 1 million calls at $0.01 at some very high strike that will never be reached? Nothing, no one else will care and they can continue buying as many worthless calls as they like. The same with selling/shorting calls, since someone else many be selling those worthless calls to no end.
Selling ITM calls right before expiration would only make the broker call those shares the following day and buy them back on your behalf if not available for shorting - happened to me a few times.
But if you mean shorting the stock synthetically using both calls and puts, then the SEC seems to be on top of that:
https://www.sec.gov/about/offices/ocie/options-trading-risk-alert.pdf
Selling ITM calls right before expiration would only make the broker call those shares the following day and buy them back on your behalf if not available for shorting - happened to me a few times.
But if you mean shorting the stock synthetically using both calls and puts, then the SEC seems to be on top of that:
https://www.sec.gov/about/offices/ocie/options-trading-risk-alert.pdf
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Satisfaction of an option contract does not require any sort of permanent disposition of the underlying shares.
You’d end up like 1R0NYMAN, the famous guy who thought he’s arbitraging hard-to-borrow stock, then ended up being assigned thousands of short shares (even before expiration), then ended up paying huge borrowing interest %rate overnight for HTB stock, then his broker (Robinhood) had to get him out of his short position the next morning. A big mess. Lost $50K, more than his worth, overnight on something he thought was risk-free. Look it up.
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Ok, so imagine that some client buys worthless calls for the full free float and magically they end up ITM for expiration. What do you think will happen?
PS Things like that happen in commodity space and can be very scary
They’d need to buy the stock and the price would go even higher?
Though I meant theoretically the calls by themselves don’t matter unless there is a scenario where they become ITM. My point was that the original question might’ve not been worded properly, without describing specific scenario.
I think in real life you'd not be able to buy that many contracts as regulation SHO will trigger for the seller.
As a random bit mental masturbation, it's interesting that the market impact of the physical delivery is against the short-delta participant regardless of the optionality. If you are short calls and have to deliver stock, you buy the stock and drive it higher exacerbating your losses. If you are long puts, you have to deliver stock at strike price - by buying it at market you drive the price up and reduce your gains.