Expiration Friday questions

Discussion in 'Options' started by marcoPolo21, Jun 15, 2012.

  1. hypothetical:
    let's say the UL stock is trading around $18 Friday afternoon,
    and I have 5 naked Short Calls [$20 strike], and
    I can close them out at 0.01, but why give up the $5.00?

    now, immediately after the market closes,
    there's some big announcement,
    and the stock shoots up to $25 or so,
    and will most likely open Monday around $25.

    what happens with my options
    when is it a "done deal"?
    could I be stuck short 500 shares of the UL?

  2. hajimow


    You will never know. It depends when the big news come out. Those who are long options have a certain time to excecise. It is like 4:15 or 5:15 or something like that. I am not sure. The best way is to call your broker. Sometimes you might end up less than 500 shares short in your account like 100, 200, 300. Sometimes not all options get excecised.
    The best strategy if you want to close your option sometimes is to buy 19 Call in your case if 19 calls are also trading 1 cents. Then if something happens and your naked calls get excecised, you can also excecise your long 19 calls and make $500 more.
  3. a better example, or more common,
    might be the flip side, 5 naked short puts,
    and bad news right after the market closes.

  4. 10 am sat. Better to lose 5 bucks
  5. this EXACT sit happened a few years ago although i forget the name of the stock. a lot of mm's, specs were picking up the proverbial pennies and decided against buying back the otm calls fri afternoon of expiry. well guess what happened at 4 pm? yep - the company announced it was being acquired for a huge premium. everyone who was long the otm calls immediately exercised (as is their right) and the calls that were worth $0.01 at 3:59:59 were now worth $20. needless to say some people were carried out feet first.

    i'll repeat the moral of the story for those still struggling to understand the concept: always buy in your short options on expiry and don't say "i don't want to pay the commission so i'll let them expire".
  6. zdreg


    "I can close them out at 0.01, but why give up the $5.00?"
    amazing attitude. \
    no wonder most traders are losers.