Options Exercising question

Discussion in 'Options' started by jonbig04, May 28, 2008.

  1. When you sell an option who or what determines if/when that options gets exercised?

    I know of course you have to add the price paid for the option to the price of the underlying stock to determine if its profitable to exercise, but who determines when the options get exercised? Is it a case by case thing? In which case I can assume no one would exercise if it wasnt profitable? How does this work?
     
  2. piezoe

    piezoe

    The person who bought the option decides whether to execute. Long options that are in the money by more than some nominal small amount are automatically executed by your broker unless you tell them not to ahead of time.
     
  3. I see. So its safe to assume if an option is in the money, it will be exercised. I got it.
     
  4. Please learn about options before trading them. An in the money option will most likely be exercised at expiration, a trader may choose not to exercise it if it is barely in the money. An in the money option may be exercised early if it is advantageous to do so in order to capture a dividend or reduce carrying costs, but this usually only happens when the option is relatively far in the money. This has been discussed several times here, the search function is a pain but it can be very useful.
     
  5. The rules were recently adjusted such that options one cent in the money at expiration will be exercised by your broker/occ.

    It should also be pointed out that the price the buyer paid for the option has nothing to do with the whether that option is an early exercise candidate or not. In addition, the party whom you sold your option to does not need to be the one who exercises an option in that series for you to be assigned on a short option. I am sure the OCC’s assignment procedure has been discussed in detail here.