Yes, according to the OCC, during 2013 only 7% of option holders exercised their options prior to the expiration date, 20.5% were held and auto-assigned and the rest were closed out prior to expiration.
However, one reason to exercise a call option early is to ensure you capture the dividend. I.e. you would exercise the call prior to the ex-dividend date, take delivery of the stock and get paid the dividend.
With borrow, no, I don't imagine many would go out and "borrow" the money. However, many brokerage accounts will have the capacity for a certain amount of "margin" in them that will allow you to take delivery of stock if your funds are too low. Alternatively, if you needed to borrow stock to sell due to a short call, then as said, your broker will borrow the shares for you automatically and charge you the borrow rate.
For retail brokers in UK...I'm not sure to be honest. But I do think you should check out Interactive Brokers - you can choose what currency your account is in i.e. GBP and only trade UK if you prefer. The forms, yes, are tedious to fill out - but their market coverage is excellent and their platform is free and full of great functionality.
Let me know if you have any other questions!
GB
January 6th, 2015 at 9:57pm
Hi Peter
Thanks for your speedy reply regarding puts.
Am I right in thinking most holders of options want to avoid exercising options due to the extra potential costs and risk associated with holding the actual share? Also I believe writers of put options do not want exercised options (assignment) for the same reason. (Or do they hold the shares they are writing the option on anyway?). Sorry, I am really at the beginning stage.
It seems then, apart from selling the option in time, and expiry out of the money - the other choices are only exercising.
In your opinion do many people exercise and actually borrow the shares? I cannot imagine many do? I think most traders must sell or expire out of the money?
With regard to a Broker - I am desperately looking for an easy to use online platform. I am UK based and am having trouble finding a platform that is conventionally laid out and deals with individual company equity options from all countries. (Most here seem only to list indices or commodity options). The US platforms are great but I am reluctant to sign up for a US based platform given the complexities of signing up and revenue forms for non US residents.
If you know of a good UK based platform please suggest it (prefereably cheap to use or free).
Thanks for your continued help.
Peter
January 6th, 2015 at 4:50am
Hi GB,
Yes, you are correct on 1 and 2.
If the option is in-the-money at expiration the option will be automatically exercised. In the case of a long put, your broker will borrow the shares on your behalf, which will then be sold to the option seller at the strike price.
You will be charged interest on the stock, which is called "stock borrow".
For exercising options, the broker I use (Interactive Brokers) has this available via the main menu;
What broker are you using? You might want to check with them if a similar feature is available in the platform that they provide you.
GB
January 5th, 2015 at 7:16pm
Hello Peter
Great Q and A section.
I was wondering if you could point me in the right direction? I am new to options trading and am interested in 'Put' options at the moment. The part I cannot quite work out is what happens on trading out of options deals. This information does not seem available in simple form anywhere?
For example, in a given put option in the money, I as the option buyer (not the writer), has the choice of:
1 Selling the put back to the market before the expiry date - If GEC shares are currently 18.95 and the strike price is 20 then I could immediately sell my option back to the options market for a profit of 1.05 x100 = 105. (I know it would not sell for exactly 20 because the new buyer would offer slightly less).
2 Exercise the option - I could Invoke the right to sell the underlying 100 shares at 20. This would mean I would go to the market now and buy 100 shares at 18.95 and then sell them to the option writer (he has agreed to buy them) for 20 each. making a profit of 1.05 per share and 105 overall.
3 Expiry - I know if you expire out of the money that is the end of matters (I would lose my premium) What happens if you expire in the money?
Are the above correct?
Finally, in scenario 2 above, how does this actually work? Do I actually have to buy the shares and deliver them to the option writer? Or does the broker handle all this? I note on many of the platforms where dealing is without a hands on broker there seems to be no facility for excercising options (or expiry). There seems to be only an ability to buy and sell options. Is this normal?
Peter
December 7th, 2014 at 5:49pm
Hi Irfan,
I don't know of any plugins for Ninja Trader that calculates option theoreticals. But, you could take a look at OptionVue - it isn't free, but it does have a free trial.
Alternatively, many brokers will provide you with a trading interface that inculdes option functionality. I use Interactive Brokers and I also hear that Think or Swim has great option functionality too. Both of these brokers provide paper trading capabilities too.
irfan
December 6th, 2014 at 2:15am
hi , i am new to options i downloaded ninja trader platform for trading in options as demo user from where i get greeks in detail like individual and portfolio greeks, analysis of portfolio p&l , calculate implied volatility real time etc can you recommend any software for these calculation and attatch with ninja trader for real time analysis so i can practice it .
VA
April 11th, 2014 at 10:09am
Mailed you the modified file - please check & let me know if you still have issues.
Thanks, VA
Peter
April 9th, 2014 at 11:05pm
Oh that'd be great, thanks! Just send it to admin at this domain. I'll make it avaialble for others to download on the site if that's ok with you?
VA
April 9th, 2014 at 9:47am
Peter,
This is what I did to make it work. With such a qualification, only the relevant macro part is validated on the machine. Tried it on different OS/Office combinations & it seems to work on all of them. Do let me know, if you would prefer that i send it to you. I can contact you via your webpage > contact > email.. if you prefer.
Cheers, VA ---------------------------------- Code (Sample) Approach Below ---------------------------- #If VBA7 Then
Public Declare PtrSafe Function URLDownloadToFile... Public Declare PtrSafe Function GetTempFileName ... Public Declare PtrSafe Function GetTempPath ...
#Else `````````````` Public Declare Function URLDownloadToFile Public Declare Function GetTempFileName Public Declare Function GetTempPath #End If
Peter
April 9th, 2014 at 7:43am
Hi VA,
Does it compile ok for you? When I add the PtrSafe attribute the VBA code won't compile - says "Expected: Sub or Function".
58 Comments
Peter January 7th, 2015 at 12:22am
Hi GB,
Yes, according to the OCC, during 2013 only 7% of option holders exercised their options prior to the expiration date, 20.5% were held and auto-assigned and the rest were closed out prior to expiration.
However, one reason to exercise a call option early is to ensure you capture the dividend. I.e. you would exercise the call prior to the ex-dividend date, take delivery of the stock and get paid the dividend.
With borrow, no, I don't imagine many would go out and "borrow" the money. However, many brokerage accounts will have the capacity for a certain amount of "margin" in them that will allow you to take delivery of stock if your funds are too low. Alternatively, if you needed to borrow stock to sell due to a short call, then as said, your broker will borrow the shares for you automatically and charge you the borrow rate.
For retail brokers in UK...I'm not sure to be honest. But I do think you should check out Interactive Brokers - you can choose what currency your account is in i.e. GBP and only trade UK if you prefer. The forms, yes, are tedious to fill out - but their market coverage is excellent and their platform is free and full of great functionality.
Let me know if you have any other questions!
GB January 6th, 2015 at 9:57pm
Hi Peter
Thanks for your speedy reply regarding puts.
Am I right in thinking most holders of options want to avoid exercising options due to the extra potential costs and risk associated with holding the actual share? Also I believe writers of put options do not want exercised options (assignment) for the same reason. (Or do they hold the shares they are writing the option on anyway?). Sorry, I am really at the beginning stage.
It seems then, apart from selling the option in time, and expiry out of the money - the other choices are only exercising.
In your opinion do many people exercise and actually borrow the shares? I cannot imagine many do? I think most traders must sell or expire out of the money?
With regard to a Broker - I am desperately looking for an easy to use online platform. I am UK based and am having trouble finding a platform that is conventionally laid out and deals with individual company equity options from all countries. (Most here seem only to list indices or commodity options). The US platforms are great but I am reluctant to sign up for a US based platform given the complexities of signing up and revenue forms for non US residents.
If you know of a good UK based platform please suggest it (prefereably cheap to use or free).
Thanks for your continued help.
Peter January 6th, 2015 at 4:50am
Hi GB,
Yes, you are correct on 1 and 2.
If the option is in-the-money at expiration the option will be automatically exercised. In the case of a long put, your broker will borrow the shares on your behalf, which will then be sold to the option seller at the strike price.
You will be charged interest on the stock, which is called "stock borrow".
For exercising options, the broker I use (Interactive Brokers) has this available via the main menu;
What broker are you using? You might want to check with them if a similar feature is available in the platform that they provide you.
GB January 5th, 2015 at 7:16pm
Hello Peter
Great Q and A section.
I was wondering if you could point me in the right direction? I am new to options trading and am interested in 'Put' options at the moment. The part I cannot quite work out is what happens on trading out of options deals. This information does not seem available in simple form anywhere?
For example, in a given put option in the money, I as the option buyer (not the writer), has the choice of:
1
Selling the put back to the market before the expiry date - If GEC shares are currently 18.95 and the strike price is 20 then I could immediately sell my option back to the options market for a profit of 1.05 x100 = 105. (I know it would not sell for exactly 20 because the new buyer would offer slightly less).
2
Exercise the option - I could Invoke the right to sell the underlying 100 shares at 20. This would mean I would go to the market now and buy 100 shares at 18.95 and then sell them to the option writer (he has agreed to buy them) for 20 each.
making a profit of 1.05 per share and 105 overall.
3
Expiry - I know if you expire out of the money that is the end of matters (I would lose my premium) What happens if you expire in the money?
Are the above correct?
Finally, in scenario 2 above, how does this actually work? Do I actually have to buy the shares and deliver them to the option writer? Or does the broker handle all this? I note on many of the platforms where dealing is without a hands on broker there seems to be no facility for excercising options (or expiry). There seems to be only an ability to buy and sell options. Is this normal?
Peter December 7th, 2014 at 5:49pm
Hi Irfan,
I don't know of any plugins for Ninja Trader that calculates option theoreticals. But, you could take a look at OptionVue - it isn't free, but it does have a free trial.
Alternatively, many brokers will provide you with a trading interface that inculdes option functionality. I use Interactive Brokers and I also hear that Think or Swim has great option functionality too. Both of these brokers provide paper trading capabilities too.
irfan December 6th, 2014 at 2:15am
hi ,
i am new to options i downloaded ninja trader platform for trading in options as demo user from where i get greeks in detail like individual and portfolio greeks, analysis of portfolio p&l , calculate implied volatility real time etc can you recommend any software for these calculation and attatch with ninja trader for real time analysis so i can practice it .
VA April 11th, 2014 at 10:09am
Mailed you the modified file - please check & let me know if you still have issues.
Thanks, VA
Peter April 9th, 2014 at 11:05pm
Oh that'd be great, thanks! Just send it to admin at this domain. I'll make it avaialble for others to download on the site if that's ok with you?
VA April 9th, 2014 at 9:47am
Peter,
This is what I did to make it work. With such a qualification, only the relevant macro part is validated on the machine. Tried it on different OS/Office combinations & it seems to work on all of them. Do let me know, if you would prefer that i send it to you. I can contact you via your webpage > contact > email.. if you prefer.
Cheers,
VA
---------------------------------- Code (Sample) Approach Below ----------------------------
#If VBA7 Then
Public Declare PtrSafe Function URLDownloadToFile...
Public Declare PtrSafe Function GetTempFileName ...
Public Declare PtrSafe Function GetTempPath ...
#Else
``````````````
Public Declare Function URLDownloadToFile
Public Declare Function GetTempFileName
Public Declare Function GetTempPath
#End If
Peter April 9th, 2014 at 7:43am
Hi VA,
Does it compile ok for you? When I add the PtrSafe attribute the VBA code won't compile - says "Expected: Sub or Function".
I've tried on XP 32 bit and Windows 7 64 bit.
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