ITM Put Which Is Not Exercised At Expiration

Discussion in 'Options' started by dragonman, May 19, 2012.

  1. Is it possible that an equity put which is deeply in-the-money at expiration will not be exercised by the holder (for any reason)? I am short such a put and I want to know if there is a chance that I will not be assigned on it, so that I should keep the position until expiration and not close it now.

    Incidentally, I know that calls which are deeply in-the-money are sometimes not exercised due to account equity limitations but I am not sure if there are similar limitations regarding puts.

  2. rmorse

    rmorse Sponsor

    I've never heard of a circumstance where a Deep in the money option is not exercised. If you don't have the money for exercise, the clearance firm will liquidate your position on Friday. An options that just in the money is a crap shoot. If the stock moves over the strike after 4 pm, some might choose to file an "exception."
  3. Such circumstances may sometimes occur regarding DITM call options that are not exercised by retail customers (and therefore the MM has a practice of trading them just before ex-dividend dates), isn't it? My question was if there is a similar situation regarding DITM puts, and if not -- why is the difference between calls and puts in this regard? In other words, why there could be a situation in which a retail customer will not be able to exercise his DITM call but will be able to exercise his DITM put?
  4. rmorse

    rmorse Sponsor

    The "before x-div" example is an early exercise. Your original question was "at expiration." I'm now not quite sure what your asking. Can you please rephrase the question?

  5. I am asking about "at expiration". I thought that the "before x-div" example may occur not only regarding an early exercise but also at expiration that is on the x-div date, but I may be wrong.

    However, I just want to understand if put holders may have any limitations whatsoever on exercising their DITM puts at expiration, or their brokers will always let them to do that regardless of the equity they have in their account, so that there is no chance that I will not be assigned on a short DITM put.
  6. Especially considering that there are brokers who have stricter margin requirements than others.
  7. rmorse

    rmorse Sponsor

    No they won't. For the most part, online "discount" brokers will not let you have a margin event. Puts or calls don't make a difference. Some firm provide auto liquidation, some do it manually. I was long a calendar last week in my IRA at TD. The expiring option was an ITM GLD call. I asked them on Thursday what their policy was. I told the rep on the phone in their margin department, I'd like to roll the May option at around 3:00pm to 3:30Pm. I explained that I was a professional options trader to 25 years and I would not allow the call to be assigned. She told me If I did not buy the call back buy 12:30pm, at some time between then and 2:30pm I'd likely get bought in to protect TD and my account.

    So, if your long/short ITM puts or calls on expiration Friday, your broker will have some policy to liquidate the option if you do not have the assets in the account to cover it. Some firms that deal with professional accounts, not in an IRA, will allow the event, then you'll have a margin call Monday that can be met with a wire transfer or it will liquidated Monday.
  8. Is this a margin question or a question about if a deep itm put at exp would ever not get exercised for whatever reason?

    So if you are asking about margin, that is a broker/clearing house specific issue. Some will not you hold a option that will cause a margin issue and will sell the option on exp. Some will let the option be auto ex and this force you out MOO the next day. Some will let it auto ex and then allow the margin call the next which you must meet or have the account fall into reg-t/cash only etc...

    If you are asking about a reason puts or calls would not be auto ex is that a holder of the option has the right till sat morning to say that they dont want the longs that they hold to be exercised. Real or Theo movement in the underlying is 99% of the reason this would happen. I got hit in a biotech many years ago with a friday night drug annoucement...lesson learned.
  9. If you are short a put and its in the money, you will get stock put to your account unless you buy to close that put option.
  10. newwurldmn


    I once arbed a guy on a managed care name. Govt was going to make an annoucement and I was able to buy the atm call expiring that friday for a few cents.

    You may not get exercised on a deep in put, but that it is so rare that you'll talk about it for 20 years. It's never happend to me.
    #10     May 19, 2012