Mark I think you are not focusing on what we are discussing here. We are not trading OTC, Futures, Index funds, or Currencies. So the information posted is valid. I am not saying the information you have given is not important I am just saying it is an addendum and something to be aware of.
I can only go by what the Schwab broker told me. Since I trade with them I will go with their explanation. If you trade with someone else I suggest you talk it over with them. Although you would think all brokers have the same rules, maybe some are different.
Right. That’s why I included the “General definition” of expiration time. That applies to all options covered by the OCC by-laws form of contract. The additional ones that I included are the exceptions to that general definition. I included a link to the actual document, so you can go look at it yourself!
That means that by contract, the expiration time of the typical equity options we trade is indeed 11:59pm*. However, because exchanges and brokers have differing rules regarding “business hours”, and usually require a phone call to effect a “do not exercise”, the practical cutoff is likely earlier than that. Maybe Merrill only takes a “do not exercise” by 4pm eastern. Maybe Fidelity takes them until 5:30pm eastern. And, of course, there’s also the real world to consider here - let’s say you hold an option that is in the money, but at 4:30pm there is huge news that will surely cause the stock to dramatically move on Monday morning. You hear that huge news on the 5pm news broadcast, and at 5:10pm you decide to call for a “do not exercise”. Then you call your broker and you are on hold, probably because thousands of others are also calling the broker at the same time, and 5:30pm comes and goes while you are still on hold. And at 6pm, your call gets shifted to “we apologize for the delay, please call us back during business hours”.
* This may also explain why we usually get the email about assignment (or expiration) sometime early Saturday morning. Because legally, per the actual verbiage of the contract, they can’t send it until after midnight.
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From what my Schwab broker told me is that the Buyer and the Market Maker are subjected to the same time and that is 1.5 hours after closing. I think that has to be true because if you had different rules for different people then this all would become very confusing and also I could see lawsuits being thrown around. Now if your broker wants to setup sub rules for you such as 4:00 EST is the close I am sure they have the right to do that but then that is why, as consumers, we can shop for the broker that meets our needs.
Sure that may be the rule on paper, and likely is (that everyone has the same latest time). But in the real world, that may be meaningless. We, the retail buyers of options, have to make a phone call, and have to talk to a human, and then that human has to make a notation somewhere, etc. But for the market maker, they have a computer that scans ALL expiring options, thousands, tens of thousands, of them, and then decides which are good to allow to be exercised, and which are not. And then all those thousands are notated “exercise” or “do not exercise” all at once. They can have human input for special cases. They can even finalize their choices at 5:29pm if they choose. We, retail buyers, can’t even dial the number and get to the right person at 5:29pm.
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Here is a practical example…
I have sold 10 puts for $85.5, I wanted to close or roll, but doing so will incur not only the bid-ask spread and commission for the options to close. If it is fidelity, I would have closed since they don’t charge commission for closing trades that have < 0.5 in premium. But IBKR I would have incurrent $5 to $7.5, and add to that $0.03 to $0.05 premium I decided it is not worth giving $30 to $50 back on $128 total Premium I can earn.
So the stock closed exactly at $85.5, now I could simply short $TLT and take the assignment and close the position without incurring all the commission, because as I write this $TLT is trading at $85.46. Now, I am not sure where $TLT will finish during the AH, so if assigned, I have decided to take the assignment and turn around will sell calls against it.
Whether I will get assigned or not is something I will not know until like midnight eastern time. The key here is I am not in control of this situation, the owner of the Put is in control of this situation. If I wanted control, I should have paid the price and closed the trade and accept lesser profit.
This is indeed a classic example (if it were a regular stock and not an ETF)! It officially closed at $85.46. But at 5:30pm it was trading at $85.57. This is an example of closing below the strike price, but going above the strike price in extended trading.
I’m not sure if it makes a difference in this case because TLT options are cash settled rather than stock settled (because it’s an ETF and not a stock). And everything I can find says that they use the closing price. Therefore, each of those put options will have 4 cents credited when settled. If you sold 10 contracts representing 1000 shares, you are likely to see a debit of $40 (1000 x 0.04) to cover their exercise. You would have been better off if it were settled in shares and they deliver 1000 shares to you at $85.50, but alas that isn’t how it works.
[EDIT: Turns out that only the CBOE FLEX options on TLT can be settled in cash, the regular options are settled with shares as usual. That’s what I get for using an AI to help with the research. This really shows yet another major negative on the thesis of AI taking over “everything” any time soon. At least I now managed to teach an AI or two how to do better research when asked about option expiry and settlement!]
No they are stock settled not cash settled.
Actually, most likely I will not get assigned. The closing price means nothing is what I have been trying to hammer, but not very successfully. 
I trade $TLT regularly for the last 6, 7 years. About few years ago, switched to completely options. So, all the time I get assigned, sometimes I sell naked calls, , and go short etc.
For all practical purpose this is a stock. Even $SLV which for tax purposes are treated as derivatives/ contracts, is assigned, short, similar to stocks.
Actually, there is a name for the risk of when the underlier trades near the strike as expiration approaches.
It’s called pin risk.
I’ve never seen this term used here, so perhaps it is more well known to folks in institutional investing.
And I agree, amount of control in the seller’s hands, especially after market hours on expiration day, is the key risk:
For folks who still think it is the closing price that determines whether the stock is assigned or not… I have already mentioned that most likely I will not get assigned, now I am sure it will not be assigned.
Why? Trump is returning to DC and convening NSA, that means there is some major hostilities going to break. Either US getting involved in Israel-Iran conflict or Israel is going to kill Khamenei. In either case, $TLT, proxy for treasuries, price will increase as safe heaven’s trade.
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