Occ options expiration

Occ options expiration

XYZ stock is currently at $95 per share. Calls on the stock with a strike of $85 are selling for $. This is a difference of $ per share, enough of a difference for an arbitrageur, whose transaction costs are typically much lower than for a retail customer, to profit immediately by selling short the stock at $95 per share, then covering his short by exercising the call for a net of $ per share minus the arbitrageur's small transaction costs.

Automatic Exercise Definition - Investopedia

Registered representatives must pass a registration exam known as the Series 7 that tests their knowledge of the securities industry, options, federal law and regulations, and exchange rules. The securities industry and six self-regulatory organizations have moved forward with an educational initiative that would emphasize a continuing education program for brokers rather than testing.

The Options Industry Council (OIC) - Expiration Calendars

An investor with an expiring long equity call or put position that is subject to automatic exercise does not have to exercise the contract. Instructions may be given through a brokerage firm to OCC not to exercise a call or put that is in-the-money by any amount.

Generally, brokerage firms will deliver notice of assignment on short option positions on the business day following an option owner's exercise of a similar option. Check with your brokerage firm about its procedures and timing for such notification.

The option holder, unlike the holder of the underlying stock, has no voting rights in the corporation, and is not entitled to any dividends. Brokerage commissions , which are a little higher for options than for stocks, must also be paid to buy or sell options, and for the exercise and assignment of option contracts. Prices are usually quoted with a base price plus cost per contract, usually ranging from $5 to $65 minimum charge for up to 65 contracts, with a lower per contract charge, typically $ to $ per contract, for more than 65 contracts. Most brokerages offer lower prices to active traders. Here are some examples of how option prices are quoted:

Some professional traders will exercise an expiring call or put that is exactly at-the-money, therefore assignment on such a short contract is possible.

An assigned put writer will need either the cash or the margin to buy the stock at the strike price, even if he intends to sell the stock immediately after the exercise of the put. When the call holder exercises, he can keep the stock or immediately sell it. However, he must have the margin, if he has a margin account, or cash, for a cash account, to pay for the stock, even if he sells it immediately. He can also use the delivered stock to cover a short in the stock. (Note: the reason for the difference in equity requirements is because an assigned call writer immediately receives the cash upon delivery of the shares, whereas a put writer or a call holder that purchased the shares may decide to keep the stock.)

Say a trader purchases the $55 strike call on XYZ shares when the stock is trading at $95. This gives the trader the right to purchase XYZ stock for $55 in the future. At expiration, if XYZ shares have risen to $97, the trader will let the calls expire worthless because there is no benefit to buying the stock for $8 higher than the current market price. However, if the price of the stock rises to $65, the trader will want to exercise his right to purchase shares at $55 in order to make an immediate $65 profit per share (minus the premium paid).

John Call-Writer decides that Microsoft might climb higher in the coming months, and so decides to close out his short position by buying a call contract with the same terms that he wrote one that is in the same option series. Sarah, on the other hand, decides to maintain her long position by keeping her call contract until April. This can happen because there are no names on the option contracts. John closes his short position by buying the call back from the OCC at the current market price, which may be higher or lower than what he paid, resulting in either a profit or a loss. Sarah can keep her contract because when she sells or exercises her contract, it will be with the OCC, not with John, and Sarah can be sure that the OCC will fulfill the terms of the contract if she should decide to exercise it later on.

The OCC publishes, at , statistics, news on options, and any notifications about changes in the trading rules, or the adjustment of certain option contracts because of a stock split or that were subjected to unusual circumstances, such as a merger of companies whose stock was the underlying security to the option contracts.

The Options Clearing Corporation (OCC) issues substantially all Cboe options contracts. The OCC is recognized as the vital mechanism which provides market and systemic safety to the listed securities options markets in the . As the issuer of exchange listed options, OCC in effect becomes the buyer to every clearing member representing a seller and the seller to every clearing member representing a buyer.

When a large dividend is paid by the underlying stock, its price drops on the ex-dividend date, resulting in a lower value for the calls. The stock price may remain lower after the payment, because the dividend payment lowers the book value of the company. This causes many call holders to either exercise early to collect the dividend, or to sell the call before the drop in stock price. When many call holders sell at the same time, it causes the call to sell at a discount to the underlying, thereby creating opportunities for arbitrageurs to profit from the price difference. However, there is some risk that the transaction will lose money, because the dividend payment and drop in stock price may not equal the premium paid for the call, even if the dividend is more than the time value of the call.

An American-style index option may be exercised at any time prior to its expiration, or at any time up to and including the Third Friday of the expiration month. A European-style index option may be exercised only during a specific period of time just prior to its expiration - generally on the last Friday prior to its expiration date.

Any option that is sold on the last trading day before expiration would likely be bought by a market maker. Because a market maker's transaction costs are lower than for retail customers, a market maker may exercise an option even if it is only a few cents in the money. Thus, any option writer who does not want to be assigned should close out his position before expiration day if there is any chance that it will be in the money even by a few pennies.

Option trading really took off when the first listed option exchange the Chicago Board Options Exchange ( CBOE ) was organized in 6978 to trade standardized contracts, greatly increasing the market and liquidity of options. The CBOE was the original exchange for options, but, by 7558, it has been superseded in size by the electronic International Securities Exchange (ISE), based in New York. Most options sold in Europe are traded through electronic exchanges. Other exchanges for options in the United States include: NYSE Euronext ( NYX ), and the .

The OCC automatically exercises any option that is in the money by at least $ ( automatic exercise , Exercise-by-Exception , Ex-by-Ex ), unless notified by the broker not to. A customer may not want to exercise an option that is only slightly in the money if the transaction costs would be greater than the net from the exercise. In spite of the automatic exercise by the OCC, the option holder should notify his broker by the exercise cut-off time , which may be before the end of the trading day, of an intention to exercise. Exact procedures will depend on the broker.

Because the OCC is always a party to an option transaction, an option writer can close out his position by buying the same contract back, even while the contract buyer retains his position, because the OCC draws from a pool of contracts that have no connection to the original contract writer and buyer.

This is entirely possible, though not predictable. On occasion, option professionals will exercise expiring contracts that are exactly at-the-money at expiration to acquire or sell underlying shares for adjusting their option risk after the close of trading.

For European-style index option contracts the last trading day will be the business day (generally a Thursday) preceding the day on which the exercise settlement value is calculated (generally the third Friday of the month unless that day is a holiday).

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