I sold a put option for an ETF at strike of $29. ETF closed at $28.94 on friday so my put should have been assigned. But it wasn't and it looks like the put expired worthless. The only thing I can think of is that the bid/ask is $28.97 / $29.05. Even though the ETF closed at $28.94 which is clearly in-the-money, do you think I didn't inherit the shares beacuse the ask is above the strike? Or do you think my broker just slipped?
Options holders have the right, not an obligation... If someone didn't want to sell his ETF or didn't have them and didn't want (or could) short them... or for whatever reason, they could opt-out of exercising. No way to find out... which ETF was it? Did you have a short hedge on? If so, finger crossed for gap down on opening....
It's got nothing to do with option holder exercising it. When puts expire in-the-money they always get assigned. My problem is the thing closed at 28.94. The bid is 28.97, the ask is 29.05 which is out of money. Now I think my broker is confused as to if they should assign me the shares or let it expire worthless. Being the weekend and all, ofcouse nobody is at the office....
It's got everything to do with the holder. A broker doesn't assign you... you get assigned by the exchange on a pro-rata basis. Which means, if any options holder doesn't exercise... that part is spread on a percentage basis to every short. Say open interest is 1000, you are short 100 options. If someone holding 500 options does not exercise, you will only be assigned for 50 options, as per exchange rules. Doesn't have anything to do with your broker... and if it does, then I guess your broker doesn't play by the rules and has some alternative scheme...
UNDERLYING PRICE METHODOLOGY – COMPOSITE OR CONSOLIDATED PRICES Since 2003, OCC has used the “composite” or "consolidated" closing or last sale price reported by OCC’s price vendors for underlying security prices. (OCC’s price vendors for underlying security prices for expiration processing are Thompson and Bloomberg.) It appears to me, based on the OCC memo included below (which I just quoted a part of) that the price it uses to determine whether to trigger exercise by exception (auto-exercise) is neither bid nor ask but rather the Last Sale Price. Like JackRab mentioned, some traders holding put options with a strike price of 29 might have opted out of exercise-by-exception since they are only in the money by $0.06 and it might not be worth the hassle for them. As I understand it, the process of assigning the exercise to an options seller is a random one so maybe in this case you got lucky and got away with it (because someone opted out of auto-exercise, which they have the right to do if they choose to)
The exchange gives notice of final closing price. It does not matter what you see as a quote. The exchanges in America have automatic executions on delivery over .01 unless it is asked to deny delivery. You should check the exchange you traded on, it should tell you. OCC is readily available. I was burned a few years back on SPX, check the products settlement page before you trade it.
This is not correct. The buyer of the option can file an exception and not exercise their option. It is also possible because of the holiday, that the stock you were assigned was not booked yet. Look again tomorrow.
Double check the final price - options technically expire on Saturday for stocks and for indexes there can also be different dates. A post option trading move in the underlying is certainly a possible reason why the owner of the options chose not to execute.
@JackRab, The way I understand it is that exercise/assignment is handled by the OCC and your clearing firm (the exchanges have nothing to do with it). So under your example where you are short 100 options with a 1000 open interest and some one doesn't exercise 500, you have no way of telling how many you will be assigned on. Your clearing firm will get a notice from the OCC on how many contracts the firm was assigned and then decide, based on their established rules, which may differ from other firms, how each individual trader is assigned at the firm. At least this is the way the process used to work, perhaps Robert Morse can chime in if there have been changes.