If I have a 500-510 oex credit spread and oex finishes at 499.99... will this count against me? Will they call it 500? Also... does 500 really count against me anyway?
Do the math. If you sold at 500 you could be exercised against though it would cost you nothing. The problem is that the market might move against you and that could cost. But that could happen at 499.99.
Well if the market closes on expiration date of the option, then I don't see how I would lose anything at 499.99 Please explain if I am wrong. I'm still very new to this.
thank you. Can you explain a scenario, regarding an option that isnt cash settled, that would cause you to lose money even if the option closed on expiry OTM? Also, how do you know which are cash settled and how/where can I find out if other symbols like AAPL, GOOG, etc are also cash settled?
In general, to find out whether an option has cash or physical settlement you need to look up contract specifications on the exchange's website. However, you obviously don't need to do that for each and every underlying/option. With that said, all index options (not options on futures, but on cash indices such as SPX, OEX, NDX, RUT, etc) are cash-settled, as you obviously cannot deliver all 500 or whatever stocks that make up the index. On the other hand, all options on stocks and ETFs are physically-settled. Now, with respect to your first question. If an option is physically-settled, like an option on AAPL for example, then just because an option has closed OTM at expiration doesn't mean that it won't be exercised. That is, if an option closes exactly ATM or OTM by 1 cent or more on expiration then it means that it won't be automatically exercised (automatic exercise threshold is 0.01 ITM). However, depending on how the stock moves in afterhours trading the option holder may still decide to exercise the option even though it has closed OTM. For example, say AAPL closes at 259.90 on expiration Friday, and you are short a 260 call. The call is OTM and will not be automatically exercised. However, at 4:10pm AAPL makes some announcement and the stock jumps to 265 in afterhours trading. So now, even though the option was OTM at the closing, it is now ITM and the option holder will most likely exercise the call. As a result, on Monday morning you can expect a short stock position on you account.
I have been told that if I have..say..a 500-510 call credit spread on OEX and the stock closes at expiry at 503, then I am responsible for $3 per share. So, if I had 1 contract at 500-510, then I would be out $300. However, I was also told that if I made the same play on something like GOOG or APPL that I would be responsible for the ENTIRE $10 credit spread and thus would lose $1000 per contract! Is this correct? If so, I don't understand why I would receive any stock position at all. I thought I just paid my losses and that was it. Thanks for all explanation.
Thanks for help, sorry for being a n00b. Ok so on OEX..if i let the underlying expire at 503, then I have to pay up $3 automatically. So for 1 contract that's $300. On GOOG or AAPL, I would be assigned stock? So if my spread was 500-510 on GOOG and the underlying closed at 503 what exactly happens and how much am I going to have to pay? Assuming a 1 contract investment to keep things simple.
can anyone explain this stock assigning? If they assigned me 100 stocks (1 contract) for GOOG or AAPL that would be like... 50,000 since its trading at 500... I dont have that kind of money so why would they let me make the credit spread trade in the first place. That cant be right. Also what happens if the underlying closes on expiry PAST my credit spread.