Hi, sorry, this is maybe a FAQ but couldn't find reliable info: Question: how are worthless options (long put) handled when they expire? Does one need to close the position or is it done automatically? Is there a danger with such worthless options, ie. assignment/excersise etc. possible?
you don't need to do anything. there is no risk unless they are close to ATM. for ex, say you're long a front month spy 100 put w/ the spy at 100.01 at 3:59:59 EST. you figure you don't need to do anything. the next second it falls to ITM and the option is automatically exercised. You are now short 100 shares. assume there's a maco event or some deal over the weekend that causes a gap up and you've got a prob. to be on the safe side either close on expiry day nlt 3 pm or call your broker and give them a "do not execute" order for each position.
Thx for the info. Here's an interesting lawsuit regarding these cases: "Jinming Cao v. Interactive Brokers, LLC - Commodity Futures ..." http://www.cftc.gov/LawRegulation/Dispositions/idcao072809 Another info I found on the net: Q: When do option contracts expire? A: All equity options and index options expire at 11:59 PM ET on the Saturday following the third Friday of the expiration month. An expiring option will stop trading at 4:00 PM ET on the business day before the expiration day. Q: Is there a commission or other charge for an option that expires worthless? A: There is no commission charge for an option that expires worthless. However, if you exercise an option contract which is long or are assigned on a contract on which you are short, the resulting event is a transaction that will entail a corresponding commission charge.