I had a similar issue last year. I had 1000 SPY callspreads expiring which were close to the upper strike and I didn't have nearly enough money to buy 100,000 SPY (about 12MM notional). My broker said that if both legs got exercised I didn't have any problem. If one leg (my long leg) was in the money, I would have a margin call on monday, but my options would not be abandoned. So I would be taking a weekend punt on a huge notional.
" At $40 each, our hero will get 50 options (ignore commissions for now) for a total of $2,000." more money has been lost in "trading" because of "heroic" action then nearly all other trading errors. before even considering trading you should learn the basics of risk management.
Wow, are you serious? You completely misinterpreted my post. "Our hero" was just one of many ways I referred to the hypothetical person in my example because I got sick of calling him "they," "our hypothetical person," and "he." I wasn't talking about "heroic" action or anything else, nor was I condoning the course of action discussed in this thread What part of my hypothetical question involving option procedures makes you think I don't understand "the basics of risk management"? It wasn't even a question about risk
If the bid is 0, it's possible you won't be able to sell. This is more likely when the option is about to expire worthless or almost worthless. The nightmare scenario is described in http://www.elitetrader.com/vb/showthread.php?s=&threadid=51251 . All brokers ought to let you opt to not exercise the option. Most let you do this online, although some may require that you phone them. You should do this if there's any chance at all that you will be exercised and you don't want to hold the resulting stock.
I was paper trading options on Emini S&P500 futures on Friday. I sold a 1360/1360 straddle and with about two minutes to go the short put was in the money by about two points IIRC, so I bought them back. Just then the futures did a moonshot and the short calls ended up in the money. I think it closed at 1363+. Lucky thing it was only paper. Still waiting to see if I will be short 10 /ES contracts at 1360 tomorrow.
You should always close your trade before the end of Fridays close unless it's well away from the strike price. The option doesn't technically expire until Saturday, and the closing price at the end of the day is not the price used for options which is determined by the MM at 15 mins after the hour - I got screwed on that big time with the XLF and thinking I was in the clear on some naked puts - got the stock put to me and it tanked on Monday - this was back in 2008. I'm not an options guru, so someone please correct me if I got some of that wrong.
Just because your option is out of the money doesn't mean you won't get exercised. People exercise options all the time if they have mismatched deltas. If you are within 10 - 20 cents of the money there is no guarantee you will or won't get exercised. And then of course there is the issue of information coming out. While options technically expire on saturday I believe you have to make your elections by 5:30 on Friday. Better to close out the position than take a punt on dollars for a few cents cost.
Newwurldmn is absolutely correct. Remember that you can trade stocks after hours as well and have until 4:30 central to exercise. So you may buy GLD, AAPL or whatever stocks that have been very volatile, after hours and then exercise your options later that wouldn't have been a good exercise at 3:15