SPY closes at 16:00 or 4pm flat. Has been doing so for something like 9 years now. It's odd that you weren't aware of this.
The regular trading hours for equities are 4:00, but as previously mentioned, the options trade until 4:15. That's what I got confused about. I assumed that both the equities / underlying as well as options traded until 4:15 for certain ETFs including SPY. I'm well-aware of the fact that most options and all equities stop trading at 4:00.
source After hours SPY traded over 267$ all the time. The 4 PM close maybe under 267$ but if your counterparty was a professional that didnt head home early on Friday you might be assigned anyhow.
The puts were not assigned. I ended up closing part of the position in the after hours because I would rather be long than short going into one of the most bullish weeks of the year. I'll close out the remainder or sell some ITM puts on Monday to neutralize the position and then manage it from there. I really don't think the 4:00 PM equities close matters for SPY. The close to consider in regards to assignment is when the options market closes. Think about it logically. Why would a trader exercise an OTM put that expires in 5 mins when they can just sell off all or part of their long equities position in the aftermarket and fetch a better price? Even though SPY equities may have been trading in after hours past 4:00, there was still good volume from 4:00 to 4:15, similar to the volume from 3:00 to 3:30 and greater than many other intervals during regular trading hours.
I agree with what you are saying, but where the 4pm close matters is for the auto exercise of options. A trader will have to proactively file a contrary exercise form, or exercise something manually that was out of the money at 4pm if he feels it is correct based on later trading. There are many retail traders that may not do this, or aren't watching.
I think most retail traders in that specific instance of being long ITM puts would have simply closed the position before the options expired. A lot of brokers charge an exercise and assignment fee so many traders might also want to avoid that. But let's assume that the retail trader forgets to cancel their ITM puts and they become assigned. The broker has until 5:30 or so to inform the OCC to not auto-exercise. But before that point in time, SPY trades above the strike price by more than a few cents. So if I was the broker, couldn't I simply not exercise the puts and sell shares in the aftermarket at some price above the strike and then keep the difference between the credit received and strike as risk free profit? Here's a concrete example. Before 5:30 ET yesterday, SPY traded as high as 267.18 in the aftermarket. It was around 266.59 at 4:00 ET so holders of ITM 267 puts expiring that day would auto-execute. Therefore, if someone had a 267 ITM put and did not inform the broker not to execute, then the broker would plan to assign them 100 shares short SPY at 267 / sh. But then later the broker sees SPY trading at 267.18 before the option execution decision deadline. So wouldn't the broker simply short 100 shares of SPY at 267.18, tell the OCC not to execute the put, and then put the trader short 100 shares of SPY at 267.00 while pocketing the 0.18 / sh delta as pure risk-free profit? The customer would not know where their shares came from and would not care. If that is common practice, then I think it makes a lot of sense why my puts were not assigned despite being ITM at 4:00 ET.