Ive read the CME material but they don't cover it like the CBOE does for options. Since the tick size is 0.25, I assume if the price is hit or within 0.25 or more ITM, it gets automatically exercised right? What about close to the strike? How many dollars near the strike is it likely an option gets exercised normally? Say it is within 2 dollars to the strike, but the price to close out is very high and preferably I want to keep the profits, what is the risk of letting it expire worthless and getting it assigned anyway even if its OTM by $2 than closing a short contract? I know humans can override if they think next week it goes the other direction anyway, but normally is it like options where if you are a few cents OTM, they probably wont exercise it?
I don't know what CME material you happened to read, but the ES options contract specifications are quite clear. The option tick size is 0.25 only for premium over 5.00 and 0.05 for premium less or equal to 5.00. ITM means ITM. As long at the option is ITM by 0.01 or more at expiration it will be automatically exercised. I'm not sure I understand your close to the strike question. In a liquid contract such as the ES no one is going to exercise an OTM option as it is cheaper to just buy or sell the futures contract.
Well I normally trade equities. I've had my fair share of early exercise or assignment at expiration that are OTM. Its not impossible. I understand what you mean that it would not make sense. But maybe the clearing member or a retail/institution who purchased the option exercises for whatever reason. So you think even if its $1 OTM, it won't get exercised? I want to sell the next leg of covered options but don't want to be in a situation of being naked options because I am keeping last weeks options not closed out manually. Also, what time is the price used for consideration in options exercise? Is it all the way through to 6pm friday when it stops trading? So the ending price at 6pm?
I stopped trading equity options many years ago. Less event risk in index options. I am well aware that OTM options are sometimes exercised, but isn't this usually event driven ? For settlement you have to specify which ES options you are trading: quarterly (SOQ Friday morning), serial (4:15 PM settlement), weekly (4:00 PM price fix) or EOM (4:00 PM price fix). The serial options are the only one that can present a problem if the price moves enough from the settlement time to the end of Friday trading at 5:15 PM. Covered options? As in long futures and short calls or short futures and short puts?
Well, if you are selling covered then it doesnt really matter if its event driven or not. Well, not always. Its frankly random sometimes. I'd say 99% of the time it acts as it should and only ITM options exercised or assigned. But I've had my share of experiences. Some are early exercised. Some exercised at expiration even though its OTM at closing and throughout after hours trading. Who knows why it happens. Maybe the clearing member who sold you the option wanted to get something back at least or screw with you. Maybe its a human mistaken. Sometimes it could be a quick pop in price but the spreads are very bad so those long the contract couldnt close out profitably, so they exercise option and then sell/bug on the market to close out immediately. I've seen those cases. _______ Back onto ES. I am selling the weeklys I believe. Expiration this friday (tomorrow). I want to sell next week's options, covered. But I dont want to close out the contracts manually because the price should be very close to the strike and the closing price will be very high throughout the day I think. I want to capture all the time premium so I want to let it go not closed out manually if I can. I want to sell next week's options. I just dont want to get into a situation where I sell next week's options (so double the options to futures covered), and then they exercise away my futures, leading me to be naked the options. Normally I just close out the contracts. Often its $5 per options when they are far OTM.
Yes, covered as in I am holding as many futures positions as I have options. I dont want to be in a naked options situation.
This won't be helpful in your specific case, but it might be helpful in general. The U.S. stock, options, and futures markets have a lot in common with those booths at carnivals where you throw or toss something to win a toy. Options on futures are like that too, only more so. The rules are carefully specified, though not simple, and if you find them not especially clear, that may be a clue telling you that you may not win the toy..