If you are assigned to your short leg spread (the sales contract you are selling), you are required to buy shares of the underlying security at the strike price. If the contract is to money, it has no intrinsic value, but can be exercised/awarded at expiration, depending on the motivation of the holder of the long option. (Note that in rare cases, an OTM option may also be exercised.) Finally, an option in the currency is subject to automatic exercise in accordance with the rules of the BCC. Therefore, a long option holder should be willing to have the contract exercised and the option writer will be assigned. Keep in mind that an options contract that is in the money does not necessarily mean that its owner makes a profit by exercising it. In this case, you need to sell the stock to complete the transaction. If the stock is sold below the strike price, the loss will come from your trading account. You can avoid this mistake by closing your open options positions before the market closes on the expiry date. If a position is not exercised, assigned or closed before it expires, several things can happen.
First of all, if the option is out of the money, it has no value and there is nothing to do. It will expire worthless, which is probably good news for the seller and not such a favorable development for the buyer. Note: For a reminder about options in Money (ITM), Out of the Money (OTM) and Money Options (ATM), please read my previous article “Buy Value, Sell Junk”. A promoter who likes the idea of writing covered calls says, “More than 75% of all options held until expiration expire worthless.. That`s why you should do what the pros do and sell options to other people. After all, if most of them expire worthless, why not raise money for them today while they still have value? If for any reason we are unable to sell your contract and you do not have the purchasing power or shares to exercise it, we may attempt to file a non-exercise request with Options Clearing Corporation (OCC) and your contract will expire worthless. For example, if you are assigned on September 30, you will have a short position of the 100 shares exercised by the counterparty (a person who bought and exercised the call option) at the opening of the market on October 1. In this case, you must deliver the underlying shares and pay the counterparty the dividend associated with those shares. Remember that we cannot process an early order before the end of the trading day and therefore we cannot exercise the long leg until the next trading day (at the earliest). Indeed, Options Clearing Corporation (OCC) only informs us of your order after the market closes (when it processes orders).
While funds and shares resulting from exercises are made available immediately during trading hours, positions exercised outside market hours are queued and credited to your account on the next trading day. If the anticipated exercise occurs between 9 a.m. .m ET and 6 p.m. ET .m. ET, the associated shares must appear immediately in your account; You should not see any pending exercises in your account. Unlike an action, each option contract has a set expiration date. The expiration date has a significant impact on the value of the options contract because it limits the time you can buy, sell or exercise the options contract. Once an options contract expires, it will cease trading and will be exercised or expire without value.
Right now, you probably know the difference between a long or short call or put option. For example, the call owner has the right, but not the obligation, to buy or “call” 100 shares for each call option they own. When they collect the inventory, they have exercised their contract. Options Clearing Corporation (OCC) receives the notice and randomly selects an options dealer to shorten the contract in order to meet the terms and deliver the shares. If a seller receives the exercise notification, it has been transferred to the contract. If an option is in the money, it means that if the option is exercised immediately, it immediately offers a chance to win (provided that the amount paid is less than the recorded value), and the option is always said to have intrinsic value. This happens when the strike price of a put is higher than the current market price or when the price of a call is lower. .