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Deep in the Money Options Expiring--What Happens?
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Created: by TGoat Attachments:0

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Deep in the Money Options Expiring--What Happens?

  #11 (permalink)
Trading Apprentice
Las Vegas NV/Clark
Futures Experience: Intermediate
Platform: IB
Favorite Futures: Options
Posts: 13 since Oct 2014
Thanks: 5 given, 1 received

ACstudio View Post
Owning the contracts gives you the right to sell them or buy the stock at the strike price. It's a do with as you please. Like a coupon for a 2$ pizza....if you don't use it or sell it before it expires it isn't of any use to anybody.

However most brokerages will auto exercise any contracts that are in the money at 4pm Fri of expiration...even if you don't have the money to cover the position...and then give you 2-3 days to liquidate or add cash to hold the that you don't lose your entire investment....what else could you ask for?

I never take an option to expiration unless it's worthless. I always take profits before expiration...usually 7-10 days before expiration, if possible, to avoid the spike in Gamma risk.

Selling or buying them back before expiration for a profit is is what most of us try to do....that's the goal most of the time.

Thanks, appreciate it. While I've got you here I have another question about a RUT vertical that just expired on Mar 5. It was a +1200/-1220 put vertical. Do these types of derivitaves settle the next day? How exactly does that work?

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  #12 (permalink)
Trading Apprentice
Nashville TN/USA
Futures Experience: Intermediate
Platform: Thinkorswim
Favorite Futures: Derivatives
Posts: 35 since Nov 2014
Thanks: 0 given, 32 received

TGoat View Post
Thanks, appreciate it. While I've got you here I have another question about a RUT vertical that just expired on Mar 5. It was a +1200/-1220 put vertical. Do these types of derivitaves settle the next day? How exactly does that work?

Ye that should have settled on the 6th as it expired on the it should have expired worthless giving you max profit. Be very careful carrying these into you can see if it were like a normal option and expired on Fri and was not cash settled you would have ended up with it expiring between your strikes which is not where you want to be. Just as a rule, until you have a better understanding of how these not carry anything into expiration that even looks like it could move to where it expires between your strikes.

Also...closing the trade before expiration and taking profits allows you to move the capital into another trade so as to not lose out on the weekend.

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