Hello world, I stumbled across the same question, so I did some digging to find out the Truth. First, most exchanges have a cut-off time at 4:30 PM Cental time, for receiving exercise notice, according to: http://www.888options.com/help/faq/exercise.jsp?prt=nyse But the OCC itself has a cut-off time of 7:00 PM Central time, as explained here: http://www.888options.com/help/faq/assignment.jsp I don't know where you guys saw that it is possible to submit an exercise notice on Saturday. Interactive Brokers has a cut-off time of 4:30 PM, like most of the exchanges: http://interactivebrokers.com/en/p.php?f=deliveryExerciseActions Only members of the OCC can exercise up to 7:00 PM. If IB is not a member of the OCC, then it must submit exercise notices before 4:30 PM. If it is a member (which I think it his as they are a big option trading house), then it could theoretically submit exercise notices if an OTM option becomes ITM. I believe how it can do that while not being the official owner of the options ist just a question of having the right agreements in place with the customers... So, if I were IB, I would definitely exercise OTM options that become ITM, during the 2:30 extra hours. This is exactly what happened on June 17th, 1988 (today is the birthday!), as you may be able to read here: "Expiration day wildcard options, the case of Farmers Group Inc." http://books.google.fr/books?id=nNl...page&q=option early exercise 7:00 PM&f=false The trading participant ignored the exchange cut-off time and submitted exercise requests directly to the OCC (the timeframe was 9:00 AM - 7:00 PM just like today). It is important to recall that an exchange is just a market place among others, it is possible to buy your option on the CBOE and sell it somewhere else, as long as the OCC remains the central counterparty. So if you become a clearing member of the OCC, you'll enjoy the benefit of extra time to exercise your option. I don't have enough figures to estimate how much cash exercising wildcard options would generate in profit in a year, but that is probably worth it. Then, when we talk about early exercise of cash-settled options, like OEX (but there are others), this means it is possible to exercise at the closing price (of 4:00 PM) until 7:00 PM the same day (or 4:30 PM if you are not an OCC clearing member)... For physically-settled options, the only closing price that matters is the one on expiration friday. If you exercise early, you receive (or deliver) securities; if you want to sell (or cover) them right away you'll have to use the after hours fair trading price, not the artificial and outdated closing price. On cash-settled options, an arbitrage strategy could consist in buying a call, selling the underlying to delta-hedge, and wait for a big downward move to occur after close and before 7:00 PM. This would allow you to exercise the call at an artificially high price, buy back the underlying at a low price, and therefore book a free profit. The reverse applies when buying a put and buying the underlying. If there is no big move (and there usually isn't any), you are good to unwind your delta-hedged position, hoping the implied volatility of the option will not have made your lose some money (and it is more likely to go down than to go up, since there has been no sudden move on the underlying), if you have not hedged your vega.
Just to add that IB is an OCC clearing member: http://www.optionsclearing.com/membership/member-information/.
I just talked to someone at the OIC, who said that on expiration Friday no one can exercise after 4:30 PM CST. For early exercise, the technical limit is 6:30 PM CST (7:00 PM at latest) at the OCC, but the clearing members must abide by the exchange rules, for example in the case of cash-settled index options like OEX, CBOE's rules 11.1 prevents exercising after 3:20 PM CST. This I think clarifies everything (provided the information I got are accurate).
Great thoughts on your part. Liquidity really dried up in the stock exchanges when retail traders could buy on the bid and sell on the ask. You have no clue of economics or you are hoping others do not. It appears pretty obvious that you want to keep the retail / non MMs at a disadvantage but can demonstrate no valid marketplace reason for doing so. Of course there would still be MMs for those options that did not otherwise have enough liquidity. It simply boils down to the fact that I would like to have a level playing field for all market participants and you would not like to have that happen. Good luck to you trying to maintain the current status. Sooner or later it will go away and become a lot more efficient in the process. CBOE just went public and they will have to do what is in the best interest of the owners and not the members. Its pretty clear volume will go up for the exchanges that provide a better marketplace. I would guess you know that if you have followed what the ECNs have done in the last 12 years.
Just a point of clarification. IB cut off time is 4:30 P EST not CST which is then 3:30P CST. So IB being fully automated has a cutoff time of 30 minutes after the normal trading hours stop. Lightspeed trading as well as some others I have been talking to has a cut off time of 4:30P CST which gives the option holder a full hour longer. I have yet to get an answer from IB as to why they would have such an early cut off time considering they are fully automated and I would believe that no person actually does any type of manual work in the process of options being exercised.
Thanks Robert, By the way, do you know what kind of margin IB would apply for reverse conversions? I checked here: http://www.interactivebrokers.com/en/p.php?f=margin But it seems hard to believe that, under a Reg T account, the margin should be everyday: In the Money Put Amount + Initial Stock Margin Requirement (I understood maintenance margin is not very relevant to consider if you intend to keep the position overnight). This kind of position should have a fixed margin requirement, like 10% * strike, not something dynamic (and high)... Even the account is under Portfolio margin I guess Reg T gives an idea of the worst case scenario. Your insight on this is appreciated!
My covered calls were for $ 15/sh, and the stock closed at $ 15.11/sh. I wonder if someone will take control of my shares and it will be funny if they do and the stock opens up at $ 14.90/sh on Monday. I would assume I would need to wait till Tue to see what happens for sure unless I see the shares gone on Monday.
Yes, it's extremely likely that those calls will be exercised if they're worth .11. It doesn't matter what the stock does Monday AM. Assume that the MM exercises and then figure out the rest of his trade. You should be able to see Sunday evening that the shares are gone. Monday AM at the latest.
Hello Win, The very most important thing I can tell you about margin with IB is NEVER and I mean NEVER subject yourself to a margin call. They are automated (its why the rates are low I believe) and so you will not receive a phone call or have time to send money in. Liquidations are done right now and that is often at the worst time. There are lots of stories on ET about being liquidated from IB. In fairness IB has a contract with the customers and the customers agree to it so I don't think it makes them bad but it is something you need to keep in mind. I can't comment as well as others on the Reg T margin with IB. Also keep in mind that IB offers more than one type of margin type so maybe you could elect to be under portfolio margin which is often better but not always. Best Robert
On some big dog stocks like GOOG you may have a real chance of not getting exercised for 11 cents (still more likely than not though) On a $15 stock I would believe the odds are greater than 95% but its still a lotto and you really never know until it is to late to do anything about it. Without knowing anything more it would appear you had a winning trade though. surely better than having the stock close at 14.89 Have a good weekend