I thought this was a very informative video about a potential major issue when letting OTM options expire worthless. I typically always close out positions before expiration, but this was a very good reminder on why it can be very risky to try to hold onto short options through expiration.
VERY Important Video to Watch For Options Traders!
- Thread starter jpluto
- Start date
It seems like this sort of situation should not happen. A broker should either 1) automatically assign in the money options at expiration which would have avoided the major loss or 2) allow the option for spreads to include a one assignment triggers other assignment if both strikes are in the money.
Tim
Member
Wow. It is my understanding also that ITM options are automatically exercised when they expire. But I guess, when exactly is that and what does the stock do by that time in after hours trading. It sounds like the OCC's decision whether to automatically exercise (the long 409 puts) is made maybe at the close of the market. In this case at that time it was OTM, so there would be no exercise. It would be good to confirm with TOS or your broker just exactly when the OCC "exercises" your long ITM options.