I sold apple covered call, and actually forgot to roll the call y’day. The stock closed at $305.59, so, you can exercise and sell the stock you make money… but the option owner decided not to exercise… They may have their own reasons… but these things happen. This is for the folks who argued it never happens.. it happens infrequently but often when the stock price is so close to the strike price…
PS: Separately, you should consider these has a signal that the counterparty doesn’t want to take delivery of the shares because their original thesis of stock moving up significantly has changed or now they consider the stock has further to decline.
Even if that is the case, why not simply do a cashless exercise (exercise-and-sell)? There would be no reason not to - unless the counter-party has their brokerage someplace that would actually require the cash in the account to either perform that trade or the brokerage lacks the ability to do an immediate exercise-and-sell.
The option you sold is not actually tied to someone who bought. They are pool, book entries. So some big account/ hedge fund/ CTA had decided not to exercise, and that cascaded down to my account.
I fully understand that - but you are assuming it is some big account and not another small investor.
If there are 1000 of that specific option outstanding and less than 1000 in the money are exercised, it seems far more logical that it was a small investor than a large entity due to a myriad of reasons (lack of cash, lousy brokerage, some other friction).
That hypothetical big account would seem to have every reason too exercise it - they have virtually zero friction against doing such - and such a trade would even likely be automated.
You are drawing wrong conclusion. If it is a small investor, they had plenty of opportunity to close it, especially if they don’t have cash. The only folks who don’t close, when it is so close to strike typically are hedgies because these positions are tied with other positions like index related trade.
If your option is on money, you have to specifically instruct the brokerage not to exercise, otherwise it is automatically exercised.
Your lack of understanding of how the market works, keeps you making such statement. Remember the market makers all have automated programs, and if you are an individual investor, the option is exercised automatically as it was more than $0.05 in value.
So someone explicitly made a decision not to exercise, that is not an execution error. Your inability to accept that doesn’t make others are wrong.
The closing price at 4pm isn’t necessarily the price that “matters” for options exercise. I only learned this 4 decades after beginning trading options!!! That’s because the decision to exercise or not is not made at 4pm, it is made during the after-hours, I think at 5:30pm or maybe 6pm. On Aug 17th, the stock closed at $305.59, but in the after-hours it traded much closer to $305, perhaps even slightly below $305 at one point (just by eyeballing a not so detailed chart). It’s important to remember that the shares are only delivered the NEXT business day, so if something bad happens that evening or that night, the value of the stock may be [much] less than the exerciser expected it to be.
Regular brokers that handle individual investor accounts will usually automatically exercise any option that is in the money by at least $0.01, but those are a minority of total options volume. I don’t know which price (the 4pm price, the 5pm price, the 5:30pm, the 6pm price, ?) those brokers use.
I had the opposite happen to me once last year (and I posted about it here). I had an option that was NOT in the money exercised and assigned to me!
