So I’ve been using a paper trading account to test out selling some vertical spreads. The problem is that I’m not really sure at what time they expire. I looked it up and of course everyone said that most contracts expire at the close of the market on the day of expiration, that being 4pm EST. The problem is that I waited until then and I didn’t end up getting the credit in my paper trading account. The paper trading account might be glitched or something but it’s very frustrating because I don’t want to have to try this on my normal account before I know if it works the way I expect it to. For reference, I was selling the SPY 304.5 call and buying the 305 call with an expiration on Wednesday (Oct 30), and at 4pm they were both OTM so I assumed that it would just put the credit in my account at that point. During after hours the 304.5 call did actually go in the money though so I’m not sure if that was why. I also made the transaction on the same day as the expiration (Oct 30) if that may have something to do with it.
Most options stop trading at 4pm et on expiration day (except half days before holidays). Some options, such as SPY will continue to trade until 415pm. The holder of the option will then have up to 530pm (or earlier depending on the broker) to decide whether to exercise or not exercise his option. After hours trading may effect this decision, so just because your short option expires out of the money, doesn't mean it won't be exercised. The OCC (Options clearing corp.) then aggregates all this information and tells the brokers late that evening what options have been assigned.
The credit would’ve been at the time of the trade, not after expiration. Not an option expert but I’d educate myself on early exercising and exercising of options and how paper trading options might not be a great way to know those risks or perhaps liquidity risks with options.
I asked my brokerage firm a similar question this week. Here is the answer I got: Options stop trading and expire at close of market (usually 4:00 pm) of the expiration date. However, due to lag or market activity, your 4:00 pm order may not execute. You may exercise your expired options until 5:15 pm (brokerage rule) of the day of expiration. Again, lags may affect your order so don't push it. Your assigned (exercised by other party) options are reported after several hours. However, they may not be posted to your account until the next business day i.e. Monday. Some brokerage firms will automatically exercise in the money +/- a couple of cents options at expiry. You need to ask your brokerage about their rules. I did not get to ask this question, I need to find out the rules for my brokerage. Finally your in the money options may not, for a whole bunch of reasons, get exercised. I need to find out more about why this would happen. It would be best to ask lots of questions before you risk any real money. And especially it would be good to know the differences from a paper account.
If an option is one cent or more ITM at expiration, the Option Clearing Corp will automatically exercise your options whether they are long or short. This is called Exercise by Exception. For equity options, you will end up with a position in the underlying (index options are cash settled). If you are long the option, you can designate to the OCC via your broker that your options are not auto exercised at expiration. This would make sense if they are ITM by pennies and your cost to close the position exceeds the ITM amount. Details are available at the CBOE.
Hi JimBur You mentioned your broker allows you to exercise expired options until 5:15pm. Which broker allows this?
I paper trade with Interactive Broker's software and I've found it to be the most realistic for options trading that I've used. It's not perfect, but it's close. Like others have said, SPY trades until 4:15pm. With IB's paper trading software, I was once OTM on expiration Friday, at 4:15, but then price moved after 4:15, putting me ITM, and I had shares in my paper account Monday morning. A risk to be aware of. After that incident, I spent hours looking into what time I have, until I could get exercised if price puts me ITM. I've read Saturday noon, Friday 5:30, and other situations. It was never crystal clear for SPY. Still isn't. Yes, I did check CBOE and IB. After that, I will never allow a position expire at 0. I will always try to close it before hand.
Well, just to make it "crystal clear" for you. The holder of a long option will have until Friday at 430pm et in order to decide whether to exercise or not (or 430pm et on Wed or Monday for weekly expirations). This is the OCC cutoff time, so most brokers will have an earlier cutoff time in order to make the OCC deadline. My broker has a 415pm deadline. Just because your option goes in the money after hours, doesn't mean the hold will exercise. Exercises are then processed by the OCC and firms are notified sometime before midnight on Friday. On rare occasions, if there are some type of systems issues, etc, the OCC may extend this deadline for a very short period of time. I agree with you that is always good to close out your short options to reduce this risk at expiration.
Hi @FSU. Are opportunities identical for expiring index options? Cash settlement looks like a big plus
Cash settlement eliminates the risk of early exercise and pin risk. You never have to worry about whether or not you will be assigned. This can be a big plus, although if you are long these options you won't have the opportunity to exercise early or after hours on expiration.