Frequently Asked Questions
Stock Options
What happens after I’ve entered into an options position?
Exiting of an Option position
There are two ways to close out an open option:
- Let the option lapse (for options that are not ITM of US$0.01 or more which are subjected to auto-exercise by the OCC)
- Enter into an opposing option to net off the position
Example:
- Short a call with the same underlying asset and expiration date to exit an open position in a long call
- Long a put with the same underlying asset and expiration date to exit an open position in a short put
Assignment
The Options Clearing Corporation (OCC) randomly assigns the exercise notices it receives to the open interests of its clearing members as part of their processing sequence. The clearing member then randomly assigns these exercise notices (via an automated assignment algorithm) to those short positions of that particular notice. Seller of Options have no control over the assignment and will have to fulfil the obligation as per the Option contract.
Auto-exercise
Positions expiring in the current month that are ITM as per below threshold, will be subjected to auto-exercise by the OCC without the need for any explicit instructions. Auto-exercise happen only on option expiration only. Intention to avoid the auto-exercise by the OCC for the Options held must have the position closed off prior to expiry.
- Stock Options that are $0.01 or more ITM
Stock prices may experience huge price movement(s) during extended trading hours which may warrant the Option auto-exercised to be OTM in normal circumstances.
(PSPL will close off any ITM option positions prior to auto-exercise – refer to ‘Trading Details for more info)
Corporate action
Any change to an Option caused by a corporate action will be handled by the OCC and will be published on the company’s website. All affected Options will be automatically adjusted based on the notification from OCC.
Other faq that might help you
- How are options classified?
- How do I make sense of an option symbol?
- What are the moneyness of options?
- What are the Greeks in option trading?
- What are the risks involved in trading options?
- Are there any forms required prior to trading Options?
- What are the eligible account types to trade Options?
- How long is the approval process for Option Activation?
- How do I read the Option Portfolio balance?
- Why are Exercise/Assignment activities not shown on the same day of the e-statements?
- What are some of the common reasons for order rejection?
- How do I transfer funds into my Options Account? (Video Guide)
- How do I transfer funds into my Options Account?
- How do I transfer stocks into my Options Account? (Video Guide)
- How do I transfer stocks into my Options Account?
- Why is there a need to transfer funds/stocks prior to trading options?
- Does POEMS support option strategies?
- What are the supported platforms?
- Is there US Pre-market Trading for options?
- What are the tradable counters available for options?
- What happens if the underlying share is delisted onto OTC?
- Glossary
Did this answer your question?
