I complained some YEARS ago that the 50 cent trigger was a joke and a scam. It was defended by the usual apologists. Not sure why the radical change this time , maybe they want fewer surprises on Monday morning. No more free 20 cent gains for short option holders. Then again , maybe they will game this nickle to get option holders to eat stock, at the last minute. =-=-=-=-=-=-=-=-=-=-=-=-=-=-- Beginning October 2006, the Options Clearing Corporation (OCC) will implement a change to reduce the automatic exercise threshold for equity options. The current threshold of $0.25 will be set at $0.05 for expiring options that are automatically exercised by the OCC. The threshold for index options will remain at $0.01. This means that if you had an options position in company ABC and the underlying stock closed at least 5 cents above or below the strike price of your option (depending on if it is a call or put) on the Friday before expiration, your contracts would automatically exercise. The resulting stock position from the exercise would appear in your account the following Monday.
I actually think more people might end up getting screwed with this rule. Since stocks have a tendency to pin at their strikes on expiration, I suspect alot of people will get forget to close out or manually cancel the exercise on their at-the-money options. I can just imagine all the goog put/call holders who get inadvertently exercised only to have the stock gap 3 points against them on monday.
I thought options holder has "the right, but not the obligation", to buy/sell the underlying at strike. Shouldn't it be that contracts will NOT be exercised, unless the holders notify their brokers?
Of course! <b>Nobody</b> benefits from <b>forcing</b> $0.05 ITM option holders to exercise. Nobody! What a stupid rule change.
Actually, I was gaming the shit out of it, every exp. Friday, under the old rule. Now? I repeat: With forced exercise, absolutely <b>nobody</b> benefits. If there was a way to game this, I'd have already thought of it.
There's always a way to game something like this. Depends who you are and what you are trying to accomplish. And how much firepower you have at the bell.