Hi. I have a basic question on how selling calls and puts work when exercised, specifically as it pertains to futures. If I sell a call or put option I understand that the option needs to be closed out prior to settlement to avoid delivery. Could someone confirm this? Now, what happens if a call or put gets exercised before this time frame if someone sold a put or call naked on a futures contract? In terms of the call option, contracts need to be delivered to the person that exercised the call. How would a broker handle this? Would the option leave your portfolio and you would be required to purchase the contracts within a certain time period? I assume you wouldn't be responsible for any type of delivery. Is that right? What about in terms of a put option? Would the naked put writer be required to short contracts so that the person that exercised the option would receive them in their account? Thanks.
Options on Futures either settle for cash or the future. What future are you asking about? You are not required in general to close out before expiration unless your broker tells you must, which is not typical.
Thanks for the reply. I'm referring to options on silver futures. Not sure if there is another silver futures, but I was thinking about SI.
When Options on Silver Futures expire, NYMEX symbol SI, and your option is in the money, you will be long or short the future. https://www.cmegroup.com/trading/metals/precious/silver_contractSpecs_options.html.
OK, got it. So on the long side there is no fear of delivery. That makes sense. What about shorting the options. Can someone exercise the option before the fact and force the seller to deliver contracts or does that just make no sense that someone would exercise? Also, what if I shorted puts and the option was ITM...would my account just receive long contracts at the strike price or would it cash settle where I get a debit for the difference between strike and settlement price? Thanks so much.
you are asking pretty basic questions ... better read some more option books ...or else also get more info at the exchange ...
Read this from IB (Futures Options Physical Delivery): https://www.interactivebrokers.com/en/index.php?f=1567&p=delivery Most other brokers will follow the same methodology unless the broker allows physical delivery of futures held to expiration.
Thank you. Do you know how they handle sold options if someone chooses to exercise or if a sold option is ITM at the option expiration date? Thanks.
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