Hmm, new thread title?

kairo · Mar 11, 2021

TreeFortRichard said: ↑

Imagine if it went to $810 after hours friday...
and ALLLL Those people get called for not having $80,000 in cash to exercise their options...
Oppps
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They expire worthless at the bell if it isn't over $800. Wouldn't be an issue

Nimble9 · Mar 11, 2021

kairo[OP] said: ↑

I picked up a couple lotto tickets myself

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what's the worst that happens right? I thought about selling my AMC longs to buy more lotto tickets but They were too cheap when I bought them so I'll hodl

Nimble9 · Mar 11, 2021

kairo[OP] said: ↑

They expire worthless at the bell if it isn't over $800. Wouldn't be an issue
Click to expand...

right, I don't think I've ever seen like an Auto exercise lol

MGMSangTaco · Mar 11, 2021

My 760 call I got for like $80 was worth 2k before they fucked with stuff. Just imagine if they hadn’t... At what point do these suits give up. And yes, nice green dildo once again lol. Or a middle finger?

MedlinAround · Mar 11, 2021

Lets do something crazy and jump to $270 today!

98tacoma27 · Mar 11, 2021

Nimble9 said: ↑

right, I don't think I've ever seen like an Auto exercise lol
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You would just be out the premium, correct?

98tacoma27 · Mar 11, 2021

MedlinAround said: ↑

Lets do something crazy and jump to $270 today!
Click to expand...

My vertical leap is not that high.

Nimble9 · Mar 11, 2021

98tacoma27 said: ↑

You would just be out the premium, correct?
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yup! no worries if it happens. basically just a lotto ticket.

Sandman614 · Mar 11, 2021

ThunderCookies said: ↑

Refueling...
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MedlinAround said: ↑

I like the $280 refueling stage better
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We need to refuel like Elon blow up in spectacular fashion and recover with intense speed.

kairo · Mar 11, 2021

TreeFortRichard said: ↑

Right,
But I thought brokers were required to find shares behind the scenes to secure contracts...
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Ohhh, yah, from that side, yah the sellers would be not so happy lol

TreeFortRichard · Mar 11, 2021

kairo[OP] said: ↑

They expire worthless at the bell if it isn't over $800. Wouldn't be an issue
Click to expand...

No...Options include after hours friday and SETTLE saturday

TreeFortRichard · Mar 11, 2021

kairo[OP] said: ↑

Ohhh, yah, from that side, yah the sellers would be not so happy lol
Click to expand...

DO NOT get stuck holding an in the money $800 call
https://www.nasdaq.com/articles/aut...nd-other-options-expiration-issues-2010-11-18

Automatic Exercise, After-Hours Risk, and Other Options Expiration Issues
Contributor George Ruhana
9-12 minutes
Obviously, with a name like OptionsHouse, the majority of our customers trade options. Each expiration Friday, our trade desk is flooded with calls as we inevitably have customers that have questions around the actual expiration process.

“What happens if I am long options, and they finish in-the-money?” … “Will I be assigned?” … and et cetera. Hopefully, I can walk through some common expiration-afternoon questions here and shed some light on the process.

Automatic Exercise

First, the Options Clearing Corporation (OCC) automatically exercises options whose official close is one penny or more in-the-money. Those holding long calls would buy 100 shares for each call they owned after the close on Friday afternoon. Those with short calls might sell 100 shares for each call they were short as of the close. The short does not control the exercise.

For those long the options, it is your right whether or not you exercise these calls. If you wanted to, you could call our trade desk and ask to not exercise an option that finished slightly in-the-money. That way your option would expire worthless but you would not have to take delivery of the stock (more on this later). Please note that your options that settle in-the-money on the close will be automatically exercised on expiration if you don’t proactively ask that they not be exercised.

After-Hours Activity

Question #1: what happens if the stock price moves after 4 p.m. Eastern Time on Friday? Well, this is where it starts to get interesting. As any of you who trade in the after-hours market know, stocks continue to trade after the bell. Option strikes can move from out-of-the-money to in-the-money, or vice versa.

Trust me, the professionals in this market watch this very closely. They have approximately 1.5 hours after the close to make their decision on whether or not to exercise. The most common examples of this behavior are with ETFs like the Spiders (NYSE:SPY) and the PowerShares QQQ Trust (NASDAQ:QQQQ). These options even trade through 4:15 p.m. Eastern, but the options are settled based on the 4 p.m. close. Because of this, you might be assigned on an option you are short when you don’t expect it.

Small moves in broad-based ETFs are risky, but probably controlled. However, when there is an unexpected event right after the close on an expiration Friday, things can get really crazy. Over the years I have been trading, there have been a handful of instances where a major event (think FDA ruling) occurs that moves a stock a huge percentage. The stock might close at $51, but if a drug is approved, the stock could be trading at $73 after the close.

In this instance, one could expect to get short calls assigned even at the $55, $60, $65, and $70 strikes. All of them might not be assigned, because if the person long the calls did not realize what happened, he may not call in to exercise them. Again, this is very rare, but it has happened. For those who tend to be sellers of options, please remember: YOU DO NOT CONTROL WHETHER OR NOT YOU GET ASSIGNED … EVER. If something happens, you are at the whim of the people long the options.

How can you avoid some of these corner cases? Well, you could close your positions before 4 p.m. Eastern. If you do this, there is no exercise or assignment risk. However, if you are short, you might be paying commissions and a small fee to buy back the options you feel will be worthless in almost every situation.

I think you should assess these case by case. Is there risk in being short calls in the SPY that are 10% out-of-the-money? Yes, but the odds of the market going up 10% in the 1.5 hours after the close are very remote. It is probably a risk you can live with.

The odds are much different if you are short options in, for example, Priceline (NASDAQ:PCLN) that are only 10 cents out-of-the-money near the close. Since PCLN is both volatile and a high-dollar priced stock, the chance this stock could move through your strike is actually very high. By not closing out of these options, you might have to take delivery of a lot of stock, which may not be ideal for your account size. At that point, closing the options out shortly before the close takes a lot of risk off the table.

Question #2: what happens if I exercise or get assigned options and take delivery of the stock? A lot of this depends on the size of your options trade vs. your account value. The biggest risk is you end up with much more risk than your account value can justify. You will have to close the stock position on Monday morning or bring in a lot of money.

Think about this scenario: you have $5,000 in your account. If you sold five of the 170/175 bear call spreads in Netflix Inc. (NASDAQ:NFLX) for $3, you would have to post $2*5*100, which equals $1,000 (and leave the $1,500 you collected in premium in your account). So this trade takes up 20% of your account. This is probably a little too high, but within the realm of reality.

Your maximum risk of the options position alone is only $1,000. If you leave the trade on until expiration and the stock closes at $171, however, theoretically you should be happy. The spread was worth $1 at expiration and you originally collected a net credit of $3, so your profit is $2. However, if you did not close the spread, your trade is far from over. You will be assigned on the $170 calls and the $175 calls will not be an exercise.

On Monday, your account will be short 500 shares of NFLX. That is $85,500 worth of short stock!!! Margin on this trade is $51,300. Your account probably has $6,000 in it. On Monday morning, you have a couple of choices: first, if you have $45,300 laying around, you can wire it into your account and keep the short position.

Second, you can buy back the NFLX stock. If the stock is still trading at $171, then no harm no foul. You still made $1 on the put spread. If the stock is trading lower, you actually would make some money. If the stock starts to trade higher, your whole account value is at risk pretty quickly.

NFLX is a pretty volatile stock. If the stock is up 8.5% on the open on Monday, your account would be wiped out. That is not a very big move for this stock. There is almost no way that at the time of this trade, a customer with $5,000 in his account was thinking “I am willing to lose my entire account value, and then owe OptionsHouse money if the stock moves 8.5% over the weekend.”

Getting into a situation like this puts the OptionsHouse trade desk and risk departments in a bad spot. Some customers want to wait until Monday to sort this out. Others did not know about the risk, and they would have rather we busted out of the trade for them. We cannot read your minds, so we close out of positions that we deem too risky for the account size before the market closes on Friday afternoon.

This depends on the underlying dollar amount of the stock in which you have expiring options positions, as well as the dollar value of your account. This does not mean we will close positions down due to the size of your account value. You can expect that if you leave one of these positions open through expiration, you will have some decisions to make Monday morning (along with likely a margin call). (Sign up for our free webinar series on margin calls for more information on these fun things).

Hope this article is helpful; please make sure you pay attention as your positions head into expiration. All traders lose money on some of their trades over time. The bad ones lose money but don’t understand why. You should know the risks of your positions.

Please refer toCharacteristics and Risks of Standardized Options, copies of which can also be obtained by contacting our Customer Service Department atcustomerservice@optionshouse.com.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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kairo · Mar 11, 2021

TreeFortRichard said: ↑

No...Options include after hours friday and SETTLE saturday
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But that still doesn't hurt the call holder. If your $800c expires end of day friday when the price is $799, even if it goes up to $810 AH, you're not obligated to cough up $80k to cover.

Ya know, fuck it. I'm not 100% sure now. Imma unload mine. Too much at risk to be fucking around with dailies

TreeFortRichard · Mar 11, 2021

Follow up on this...It looks like there is some Nebulous 4:30 to 5:30pm still active period...So it might vary by broker..

BalutTaco · Mar 11, 2021

$800 INTO ETH!!!!! Im scared to risk on GME

saundern · Mar 11, 2021

BalutTaco said: ↑

$800 INTO ETH!!!!! Im scared to risk on GME
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Hold that

scottstrong89 · Mar 11, 2021

MedlinAround said: ↑

Like that CTXR is finally starting to climb back with my 50 shares after being down for the month.
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Yep I got back in at the right time.

Nimble9 · Mar 11, 2021

kairo[OP] said: ↑

But that still doesn't hurt the call holder. If your $800c expires end of day friday when the price is $799, even if it goes up to $810 AH, you're not obligated to cough up $80k to cover.

Ya know, fuck it. I'm not 100% sure now. Imma unload mine. Too much at risk to be fucking around with dailies
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I'm holding mine and hoping for some AH magic

MedlinAround · Mar 11, 2021

First time i've seen this low of an average volume at the end of the day for GME in a bit.

Iwilltaco · Mar 11, 2021

MedlinAround said: ↑

First time i've seen this low of an average volume at the end of the day for GME in a bit.
Click to expand...

It’s been neutered

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