What percentage of in the money call options get exercised?

Discussion in 'Options' started by toben, May 22, 2007.

  1. If the option is ITM by 0.05 or more it will be automatically exercised by the OCC.

     
    #21     May 22, 2007
  2. Yes...that's what I have been saying. The original poster didn't know this and thought the holder of those calls wouldn't get stuck with the shares. Read his first post and my reply below it.
     
    #22     May 22, 2007
  3. "Odds of in the money call *not* being exercised at expiration are zero. They are automatically exercised."

    ____________________________________________________

    YES, OPTIONS are not for new day traders or even old daytraders.
    If you have to ask this question, I would suggest you pick up Natenberg and McMillian as fast as you can and read.....

    :eek:
     
    #23     May 22, 2007
  4. toben

    toben

    The question arises from the late 90's when I had a small amount of options that expired in the money. It was in the money by more than 25 cents and the option was not exercised. It was for MSFT or IBM, I dont remember. I bought them for only a few hundred dollars and got too busy at work to sell them. I am assuming it was because I did not have enough money in the account to cover the cost of buying the few hundred shares. What happens in this scenario. Does the option writer get a free ride? Do the market maker buy the stock and sell it for the profit. Did Etrade pocket the difference?
     
    #24     May 23, 2007
  5. The $0.05 auto exercise rule was recently reduced from $0.25, back in the late 90's I don't have a clue what the auto exercise rule was like. Ten years ago is a long time, don't you know what happened?
     
    #25     May 23, 2007
  6. If you don't pay for the shares within a short time frame they will then sell them at market. You might make a profit on this transaction or be in debt.
     
    #26     May 23, 2007
  7. MTE

    MTE

    For equity options the automatic exercise threshold used to be $0.75. It has been reduced to $0.25 a few years ago. Now it's down to $0.05 ($0.01 for index options).

    If the option is ITM, but below the automatic exercise threshold and you do not exercise it manually then it expires worthless, so yes, the writer gets a free ride. The only person benefiting from this is the option writer, not market maker or Etrade, these two have nothing to do with this!

    By the way, it may seem like you are throwing away money in a case where an option is, say, $0.04 ITM, but let's suppose that the exercise fee is $15 and you only have 1 contract. So, by exercising you are getting $4 and paying $15 in fees, plus you incure additional commissions on the stock trade. In other words, you must consider the costs of exercise not just the benefits!
    This is just an example, so please don't start a discussion on the level of fees and etc!
     
    #27     May 23, 2007
  8. toben

    This is a very good thread on what can happen when you let your long ITM calls expire without closing the position yourself.

    ET thread from June 2005

    In this case the auto exercise rule was at $0.25 ITM and the calls closed $0.30 ITM on a $280 stock. A lot of trouble over a nickel.
     
    #28     May 23, 2007
  9. jnbadger

    jnbadger

    If you have to ask this question, I would suggest you pick up Natenberg and McMillian as fast as you can and read.....

    :eek: [/B][/QUOTE]

    what about Budwick? :p
     
    #29     May 23, 2007