Timeline for Do investors go long option contracts when they cannot cover the exercise of the options?
Current License: CC BY-SA 3.0
6 events
| when toggle format | what | by | license | comment | |
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| Apr 27, 2011 at 21:11 | vote | accept | 9b5b | ||
| Apr 27, 2011 at 21:03 | comment | added | Havoc P | I think as long as you sell before expiration, you can avoid a problem. You'll almost always be able to sell to a market maker but for thinly traded options you can get a really bad price. Look for high open interest and narrow bid ask spread when you buy. often "round" strike prices (multiples of 5 or 10) have more liquidity. | |
| Apr 27, 2011 at 18:48 | comment | added | 9b5b | Havoc - Thanks for your response! There are a number of different outcomes if the options are exercised at expiration, depending on broker policy and market movements of 'XYZ' stock price. I'm concerned with not having to be in that position in the first place, because some of those outcomes could end badly for the investor. So this question is mostly involved with knowing such an exercise can be surely prevented from occurring and what the best practices are, and not so much the different ways the broker will resolve the situation once you are obligated to buy the shares. | |
| Apr 27, 2011 at 18:36 | comment | added | Havoc P | Agreed, varies by broker. There are some limits imposed from the government and the options clearing corporation. One thing the broker could do is exercise for you, and then you'd be way over your margin limit, and then they'd issue a margin call or just sell the stock. They could also sell the option for you on the last day of trading. | |
| Apr 27, 2011 at 17:40 | history | edited | Tim Santeford | CC BY-SA 3.0 |
added 281 characters in body; added 73 characters in body; added 49 characters in body
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| Apr 27, 2011 at 17:35 | history | answered | Tim Santeford | CC BY-SA 3.0 |