What happens if I don't close ITM index call option before expiration?

Discussion in 'Options' started by blink18, Dec 20, 2019.

  1. blink18


    Since index options are cash settled, do I need to bother selling long ITM call option (close position) before expiration or can I just leave it to expire ITM? What are pros/cons and when is money available in my account if I don't close position?
    Last edited: Dec 20, 2019
  2. I suppose if you're not worried about the value of the option changing between now and when the index settles -- which varies across products -- and your exercise fee (if any) is less than the transaction fee of selling the option then it probably doesn't matter much. If you're talking about a single call option it's probably more economical to just sell it and move on unless the spreads are wider than the expected change in value between now and the settlement

    disclaimer: i don't trade cash settled anything so take it with a grain of salt
  3. gaussian


    This is a question for your broker and their exercise policy. The CBOE doesn't really say much about it.

    There's no reason to not close your position at a profit. If you really want to carry it through expiration give your trade desk a call and tell them to not exercise it. Despite being cash settled you could incur an exercise fee anyway if your broker decides to charge you. Most brokers will honor a request to not exercise an ITM option, but they have to be made on a contract-by-contract basis.

    The real pro-tip is to call your broker's trade desk with questions like this, and make sure you read the CBOE guides before posting.
  4. FSU


    Since most brokers don't charge exercise fees anymore there are really only two reasons to sell out your option vs. letting it be exercised (in a cash settled index).

    1, you will know the price you get for the option, vs relying on the index settlement value,

    2, you will free up margin/capital so you can make another trade.
    taowave likes this.
  5. blink18


    Does anyone know how IB exercise option, let's say that expiry date is on friday, does this mean that money is available on next trading day (monday)? I guess they use closing price of the index on friday?