"@ajacobson, do you know where one might find the actual language of the options contract?" This thread has rapidly become moronic. It's all there if you both to read it.
Actually, it isn't...and I have read, cover to cover, twice now. I did, however, get an answer from Options Industry Council. The short version is the contract language, in it's entirety is, "Buy 100 XYZ @ $100, Apr 20, 2018". The contract in this case is not a paper contract, per se, but is a mutual understanding (which is a legally enforceable "contract") and is informed by ordinary industry trade practices. So, follow up question: Is anyone aware of any (US) court cases dealing with controversy arising over the obligations of the contract? (Beyond the "I can't pay", "You must pay" variety)
He does...it's why I asked him specifically. I wouldn't put it past him being a bit miffed he doesn't have a concise answer at hand, though.
Call Jim Binder at OCC 1 800 OPTIONS and ask him how exercise is handled if the stock is unavailable, OCC is open, but the stock is unavailable. What they do is wait for the stock issue to be resolved and then open it briefly for a closing rotation. This has actually happened before where the stock is unavailable, but the exchanges need to be open for the money to move. The bigger question and why this is academic argument is why would leave the clearing houses open ? The other issue if trading is halted is all the regulators,exchange and clearing houses involved are empowered to seat a panel to resolve issues. The SEC would seat the full commission. Let's consider one critical issue - if everyone is closed you can't settle stock or move the money to/from the accounts. In 2001 I worked at the ISE at 60 Broad. Just down the street from the NYSE. The push was to get the NYSE open in time for expiration which was 9/21. They re-established power and communication by running lines above ground an asphalting over them. The plan for 9/21 if the NYSE couldn't open was to do a closing print on the consolidated tape ex NYSE and then cash settle. Everyone in the industry with open options realized that could be nightmare for many users who need actual stock/proceeds to settle. There was also a grave concern the prints would be tape painting. So the full commission was set to meet with all the exchanges and clearing houses planning to conference in. It became moot because the NYSE open the week of the 17th. @beentrading - your comment about decorum on the forum is something our moderator should address. A huge percentage of the forum is monkeys throwing their shit and we just saw @sle leave and he was probably among the best option talents around. The fact that he may be posting elsewhere just makes it worse. Not only was @sle top talent he was an industry leader. Two of the folks who work on my desk I got off the forum and probably half the resumes I get link back to the forum. I post under my own name - members have posted my reume and you'd need about 30 seconds on google to see the books I've contributed too and exchanges I've worked at and funds I've run. As @JackRab said(also an extraordinary option talent)why stay? When I first joined it was at the urging of a buddy at the AMEX who has long since left.
Everyone so far has been talking about physically settled options, what about cash settled options like the SPX? I assume they settle at the last closing price, even if that is hopelessly stale?
Ah, now the ball is in the insurance guy's court! Because of Tortious Contract Interference. Namely, impairing the rights afforded to the holder of a contract under that contract. It's a claim of simple negligence which brings us to: What's the actual legal construct of the OCC / CBOE (i.e. S-Corp, Gov charter, etc.)? Are they quasi governmental or are they private entities? If the former, they may be shielded from for tort claims of simple negligence by limited derivative sovereign immunity. There was one tiny little set of language in the disclosure doc, to the effect of, in the event the OCC receives an order to exercise, even if in violation of exchange rules, they must honor the rights of the holder and assign. That brings up a litany of questions. Specifically, what if the SEC imposes restrictions, but the order to exercise is transmitted to my broker prior the to exchange / OCC implementing the restriction. That tortious interference thing, that makes it a game of hot potato to pass the obligations as far along as possible. I think you're right. I came across it in the disclosure doc, but have since forgotten and couldn't find again on a quick skim (nor summon the motivation to read over again).
CBOE is a public NASDAQ listed - OCC is owned by exchanges. The biggest exchange complex most days is the NASDAQ group - certainly in equities - which is public. They are all governed by the SEC.
Ok, that means they're not subject to derivative sovereign immunity, which means claims of negligence can go forward against them. And being in the business of facilitating contract exchange and oversight, it would be negligent of them to interfere with the continued facilitation of contract exchange and exercise. So imagine this scenario (these are chronological): I purchase an option and it goes deep ITM. NYSE halts trading market-wide for a major news event. SEC orders a restriction on exercise. Prior to my broker's knowledge of the SEC action, I send an order to my broker to exercise. Who is left holding the bag? (Paragraph 9 of options writers risks section). Once I communicate clear intent to exercise, the contract is exercised in a legal sense, even if we do some housekeeping and confirmation of my intent. And then, same question, but SEC restriction comes between my exercise and broker telling OCC.
Any of them can be sued. I just posted a lawsuit filed against CBOE and they were sued(and settled) along with a number of MMs in 87 for not maintaining a "fair and orderly" market