I know SPXPM options are European style, which can only be exercised on the last day, this Friday. I have a short position as part of a vertical spread. I just want to confirm my understanding, that I can still close out my position any time during the trading day on Friday. Which would mean that when they are talking about exercising only on Friday, what they really mean is that at the close on Friday, all in the money options will automatically settle for the difference between the closing index price and the strike price. In other words, the holder of a long SPXPM option cannot "exercise" it during the day on Friday, thereby assigning me, and I might not know it until after Friday's close. Just trying to avoid a surprise! (as I am sure most of us have had with American style options). Thanks for any answers!
Yes, they appear to trade like other options and trade until the close on Friday at 4PM EST: Read below: Exercise Style: European - SPXPM options generally may be exercised only on the last business day before expiration. Last Trading Day: Trading in SPXPM options will ordinarily cease on the business day (usually a Friday) preceding the expiration date. http://www.c2exchange.com/Products/indexopts/spxpm_spec.aspx
There's nothing to "assign" -- they're cash-settled to Friday's close. You won't get any rail cars full of stock certificates... From the link supplied above, <i>Settlement Value: Exercise will result in delivery of cash on the business day following expiration. The exercise-settlement value, SPXPM, is the official closing price of the S&P 500 Index as reported by Standard & Poors on the last business day before the expiration date. The exercise-settlement amount is equal to the difference between the exercise-settlement value and the exercise price of the option, multiplied by $100.</i>
I guess what's confusing me is why do they even talk about an exercise? They should just say that all in the money options at expiration will settle for the difference between the settlement value and the strike price. They make it seem like an owner of an SPXPM option can exercise it some time on Friday - but to me that does not make sense - just wait until the close, for settlement. So, in effect, when they say "exercise", do they really mean settlement at close?
If you have continuing uncertainty and would like to hear it directly from the exchange, http://www.cboe.com/AboutCBOE/ContactCBOEADV.aspx
I trade the spx weeklies and spxpm monthly. Trade until close on Friday at 3:00 central time. They settle on Friday night/Saturday morning. They still use the exercise and assign language. There are no real shares that can be called or put to you so they just cash settle it. I can't think of a good reason to trade the spx on the monthly with all the gap up/down problems that can occur Thursday night and Friday morning. The spx on the monthly AM close still won't settle till the weekend so you can't try to get an extra trading day out of your buying power. At least the spxpm gives you all day Friday as another day to adjust and another day of theta.
That's what I thought - it was the language that didn't make sense. Another reason to avoid the SPX is the ridiculous way in which they come up with the AM settlement value - the opening price for each of the 500 stocks, even though they may occur at different times - leaves it wide open for manipulation.
Which is why you close all positions on Thursday well before trading stops. I mean how much more profit can you really squeeze out in the last half hour or so of trading? It's not very smart.
do any of you guys remember when bernanke pulled that rate cut nonsense the fri morning before the expiration of spx options settling in the a.m. and royally screwed over the shorts? i didn't have a dog in that hunt but if i did i'd def take him off my Christmas card list
They deserved to be. Only if you're absolutely 100% convinced you're not gonna get screwed that you hold on to credit spreads all the way through to expiration (and for how much more extra profit?). The markets will hurt almost everyone no matter what position they have taken.. I doubt Bernanke's intentions were to screw all the index shorts. He had to announce it at some point.