U.S. Securities Options Exercise Limits

INTRODUCTION

Option exercise limits, along with position limits (See KB1252), have been in place since the inception of standardized trading of U.S. securities options. Their purpose is to prevent manipulative actions in underlying securities (e.g., corners or squeezes) as well as disruptions in option markets where illiquidity in a given option class exists.  These limits serve to prohibit an account, along with its related accounts, from cumulatively exercising within any five consecutive business day period, a number of options contracts in excess of the defined limit for a given equity options class (i.e., option contracts associated with a particular underlying security). This includes both early exercises and expiration exercises.

 

OVERVIEW

U.S. securities option exercise limits are established by FINRA and the U.S. options exchanges.  The exercise limits are generally the same as position limits and they can vary by option class as they take into consideration factors such as the number of shares outstanding and trading volume of the underlying security. Limits are also subject to adjustment and therefore can vary over time.  The Options Clearing Corporation (OCC), the central clearinghouse for U.S. exchange traded securities options, publishes a daily file with these limits on its public website. The link is as follows: http://www.optionsclearing.com/webapps/position-limits.  FINRA Rule 2360(b)(4) addresses exercise limits and can be found via the following website link: http://finra.complinet.com/en/display/display.html?rbid=2403&record_id=16126&element_id=6306&highlight=2360#r16126).

Note that exercise limits are applied based upon the the side of the market represented by the option position. Accordingly, all exercises of call options over the past five business days are aggregated for purposes of determining the limit for the purposes of purchasing the underlying security.  Similarly, a separate computation whereby all put exercises over the past five business days are aggregated is required for purposes of determining sales of the underlying.

 

IMPORTANT INFORMATION

It's important to note that while exercise limits may be set at levels identical to position limits, it is possible for an account holder to reach an exercise limit without violating positions limits for a given option class.  This is because exercise limits are cumulative and one could conceivably purchase options up to the position limit, exercise those options and purchase additional options which, if allowed to be exercised within the five business day window, would exceed the limit.

Account holders are responsible for monitoring their cumulative options exercises as well as the exercise limit quantities to ensure compliance.  In addition, IB reserves the right to prohibit the exercise of any options, regardless of their intrinsic value or remaining maturity, if the effect of that exercise would be to violate the exercise limit rule.

How Can I Lapse Long Options?

Overview: 

Account holders have the ability to lapse equity options (also known as providing contrary intentions) they hold long in their account.

From Trader Workstation, go to the Trade menu and select Option Exercise.

The Option Exercise window will appear and any long options you are holding will populate under the Long Positions column header. To lapse one of them, left-click on the light blue “Select” link under the Exercise Option column header for that particular option.

Select “Lapse” from the drop down menu.

Review the request, and click the blue “ T” Transmit button to submit the lapse request.


The Option Exercise Confirmation window will appear and will show how much the option is in-the-money. If the option is out-of-the-money, a warning message will appear. To submit the Lapse request, click the Override and Transmit button.

Your Lapse request will now show as an order line on your Trader Workstation until the clearinghouse processes the request.

Please note: Option lapses are irrevocable.

In the event that an option exercise cannot be submitted via the TWS, an option exercise request with all pertinent details (including option symbol, account number and exact quantity), should be created in a ticket via the Account Management window. In the Account Management window, click on "Inquiry/Problem Ticket". The ticket should include the words "Option Exercise Request" in the subject line. Please provide a contact number and clearly state in your ticket why the TWS Option Exercise window was not available for use.

Option Lapse Requests (whether received through the TWS Option Exercise window or by a ticket sent via Account Management/Message Center) must be submitted as follows:

Note: "Contrary intentions" are handled on a best efforts basis.

 

 

 

 

到期前行使看涨期权的注意事项

简介

到期前行使股票看涨期权通常不会带来收益,因为:

  • 这会导致剩余期权时间价值的丢失;
  • 需要更大的资金投入以支付股票交割;并且
  • 会给期权持有人带来更大的损失风险。

尽管如此,对于有能力满足更大资金或借款要求并能承受更大下行市场风险的账户持有人来说,提前行权行使美式看涨期权可获取即将分配的股息。

背景

看涨期权持有者无权获取底层股票的股息,因为该股息属于股息登记日前的股票持有人所有。 其他条件相同,股价应该下降,降幅与除息日的股息保持一致。期权定价理论提出看涨期权价格將反映预期股息的折扣价格,看涨期权价格也可能在除息日下跌。最可能促成该情境与提前行权决定的条件如下:

1. 期权为深度价内期权且delta值为100;

2. 期权几乎没有时间价值;

3. 股息相对较高且除息日在期权到期日之前。

举例

为阐述这些条件对提前行权决定的影响,假设账户的多头现金余额为$9,000美元,且持有行使价为$90.00美元的ABC多头看涨头寸,10天后到期。 ABC当前的成交价为$100.00美元,每股股息为$2.00美元,明天是除息日。再假设期权价格与股票价格动向相同,且在除息日下跌的幅度均为股息金额。

这里,我们将检查行权决定,目的是维持100股delta头寸并使用两种期权价格假设(假设一个为平价,一个高于平价)最大化总资产。

情境1:期权价格为平价 - $10.00美元
如果期权以平价交易,提前行权可维持delta头寸并可避免股票除息交易时多头期权价值遭受损失,从而保护资产。在这里现金收入被全数用于以行使价购买股票,期权权利金就此丧失并且股票(扣除股息)与应收股息会记入账户。如果您想通过在除息日前卖出期权并买入股票来达到同样的效果,请记得考虑佣金/价差:

情境1
账户组成部分 起始余额 提前行权 无行动

卖期权&

买股票

现金 $9,000 $0 $9,000 $0
期权 $1,000 $0 $800 $0
股票 $0 $9,800 $0 $9,800
应收股息 $0 $200 $0 $200
总资产 $10,000 $10,000 $9,800 $10,000减去佣金/价差

情境2:期权价格高于平价 - $11.00美元
如果期权以高于平价的价格交易,提前行权获取股息则可能并不会带来收益。在此情景中,提前行权可能会导致期权时间价值损失$100美元,而卖出期权买入股票在扣除佣金之后收益情况也可能不如不采取行动。在这里,可取的行动为无行动。

情境2
账户组成部分 起始余额 提前行权 无行动

卖期权&

买股票

现金 $9,000 $0 $9,000 $100
期权 $1,100 $0 $1,100 $0
股票 $0 $9,800 $0 $9,800
应收股息 $0 $200 $0 $200
总资产 $10,100 $10,000 $10,100 $10,100减去佣金/价差

  

请注意:考虑到空头期权边被行权的可能性,持有作为价差组成部分之多头看涨头寸的账户持有人应格外注意不行使多头期权边的风险。请注意,空头看涨期权的被行权会导致空头股票头寸,且在股息登记日前持有空头股票头寸的持有人有义务向股票的借出者支付股息。此外,清算所行权通知处理周期不支持提交响应被行权的行权通知。

例如,假设SPDR S&P 500 ETF Trust (SPY)的信用看涨(熊市)价差包括100张13年3月到期行使价为$146美元的空头合约,以及100张13年3月到期行使价为$147美元的多头合约。在13年3月14日,SPY Trust宣布每股股息为$0.69372美元,并且会在13年4月30日向13年3月19日前登记的股东支付。因为美国股票的结算周期为3个工作日,想要获取股息,交易者需要在13年1月14日之前买入股票或行使看涨期权,因为该日期一过,股票便开始除息交易。

 

13年3月14日,距离期权到期只剩一个交易日,平价成交的两张期权合约每张合约的最大风险为$100美元,100张合约则为$10,000美元。但是,未能行使多头合约以获取股息以及未能避免空头合约被其他想要获取股息的交易者行权会使每张合约产生额外$67.372美元的风险,如果所有空头看涨合约都被行权,则所有头寸总风险为$6,737.20美元。如下表所示,如果空头期权边没有被行权,则13年3月15日确定最终的合约结算价格时,最大风险仍为每张合约$100美元。

日期 SPY收盘价 13年3月行使价为$146的看涨期权 13年3月行使价为$147的看涨期权
2013年3月14日 $156.73 $10.73 $9.83
2013年3月15日 $155.83   $9.73 $8.83

请注意,如果您的账户符合美国871(m)预扣税要求,则除息日前平仓头多期权头寸并在除息日后重新建仓可能会带来收益。

有关如何提交提前行权通知的信息,请查看网站

 

上述内容仅作信息参考,不构成任何推荐、交易建议,也不代表提前行权会成功或适合所有客户或交易。账户持有人应咨询税务专家以确定提前行权可能带来的税务影响,并应格外注意以多头股票头寸替换多头期权头寸的潜在风险。

有关实物交割规则的信息

IB不具备进行实物交割的条件。对于需通过底层商品实物交割进行结算的期货合约(实物交割期货),账户持有人可能无法发起或接收底层商品交割。

账户持有人有义务了解每种产品的结算期限。如果账户持有人未在结算截止日期前平仓实物交割期货合约中的头寸,IB可能在无事先通知的情况下清算该账户持有人即将到期合约中的头寸。请注意,清算不会影响未成交定单;账户持有人必须确保根据实时头寸对平仓头寸的未结定单进行调整。

为避免即将到期期货合约交割,账户持有人必须在结算截止日期前延期或平仓头寸。

下方列出了期货和期货期权合约的相关结算截止日期。您还可通过账户管理查看此信息:登录账户管理后选择屏幕右上方的书本图标,然后选择交易 > 交易与行权。

可在IB网站的帮助与联系 > 合约搜索获取相关的第一通知日、第一头寸日以及最后交易日信息。所有日期信息都基于最大努力的基础上提供,并且需通过查看交易所网站上的合约条款进行验证。

 

实物交割期货政策总结

合约

是否交割

结算截止日期

ZB, ZN, ZF (ECBOT)

第一通知日(做多)或最后交易日(做空)前一个工作日公开叫价交易结束前2小时

ZT (ECBOT) futures, Japanese Govt Bond Futures (JGB)

第一头寸日(做多)前第二个工作日结束时或最后交易日(做空)的前第二个工作日结束时

EUREXUS futures

第一头寸日(多头)或最后交易日(做空)前一个工作日结束时

EUREXUS 2 yr Jumbo bond (FTN2) and 3 yr bond (FTN3) futures

第一头寸日(多头)或最后交易日(做空)前第二个工作日结束时

IPE contracts (GAS, NGS)

第一头寸日(做多)前第二个工作日结束时或最后交易日(做空)的前一天结束时

GLOBEX LIVE CATTLE (LE)

第一意向日(做多)或最后交易日(做空)前第二个工作日结束时

GLOBEX NOK, SEK, PLZ, CZK, ILS, KRW and HUF, and correspondent Euro rates

最后交易日(做多与做空)前第五个工作日结束时

GBL, GBM, GBS, GBX (Eurex), CONF (SOFFEX)

最后交易日交易结束前2小时

GLOBEX currency futures (EUR, GBP, CHF, AUD, CAD, JPY, HKD)

是*

不适用*

GLOBEX Ethanol futures (ET)

第一头寸日(多头)或最后交易日(做空)前第五个工作日结束时

NG futures (NYMEX) 第一头寸日或最后交易日(取较早者)(做多)前一个工作日结束时或最后交易日(做空)前一个工作日结束时

所有其他合约

第一头寸日或最后交易日(取较早者)(做多)前第二个工作日结束时或最后交易日(做空)前第二个工作日结束时

*因现金和IRA账户不得持有外汇,上方列出的所有其他合约的清算计划也将适用于现金和IRA账户内的外汇产品。

实物交割期货期权政策总结

合约

是否交割

结算截止日期

OZB, OZN, OZF, OZT (ECBOT)                                               

第一通知日(做多)或最后交易日(做空)前一个工作日公开叫价交易结束前4小时

所有其他合约


如果期权到期日在底层期货第一头寸日之前,期权将可到期成为期货(如果是价外期权,到期则毫无价值)。如果最后存在期货头寸,则会受结算截止日期的制约,如上所述。

 

Considerations for Exercising Call Options Prior to Expiration

INTRODUCTION

Exercising an equity call option prior to expiration ordinarily provides no economic benefit as:

  • It results in a forfeiture of any remaining option time value;
  • Requires a greater commitment of capital for the payment or financing of the stock delivery; and
  • May expose the option holder to greater risk of loss on the stock relative to the option premium.

Nonetheless, for account holders who have the capacity to meet an increased capital or borrowing requirement and potentially greater downside market risk, it can be economically beneficial to request early exercise of an American Style call option in order to capture an upcoming dividend.

BACKGROUND

As background, the owner of a call option is not entitled to receive a dividend on the underlying stock as this dividend only accrues to the holders of stock as of its dividend Record Date. All other things being equal, the price of the stock should decline by an amount equal to the dividend on the Ex-Dividend date. While option pricing theory suggests that the call price will reflect the discounted value of expected dividends paid throughout its duration, it may decline as well on the Ex-Dividend date.  The conditions which make this scenario most likely and the early exercise decision favorable are as follows:

1. The option is deep-in-the-money and has a delta of 100;

2. The option has little or no time value;

3. The dividend is relatively high and its Ex-Date precedes the option expiration date. 

EXAMPLES

To illustrate the impact of these conditions upon the early exercise decision, consider an account maintaining a long cash balance of $9,000 and a long call position in hypothetical stock “ABC” having a strike price of $90.00 and time to expiration of 10 days. ABC, currently trading at $100.00, has declared a dividend of $2.00 per share with tomorrow being the Ex-Dividend date. Also assume that the option price and stock price behave similarly and decline by the dividend amount on the Ex-Date.

Here, we will review the exercise decision with the intent of maintaining the 100 share delta position and maximizing total equity using two option price assumptions, one in which the option is selling at parity and another above parity.

SCENARIO 1: Option Price At Parity - $10.00
In the case of an option trading at parity, early exercise will serve to maintain the position delta and avoid the loss of value in long option when the stock trades ex-dividend, to preserve equity. Here the cash proceeds are applied in their entirety to buy the stock at the strike, the option premium is forfeited and the stock (net of dividend) and dividend receivable are credited to the account.  If you aim for the same end result by selling the option prior to the Ex-Dividend date and purchasing the stock, remember to factor in commissions/spreads:

SCENARIO 1

Account

Components

Beginning

Balance

Early

Exercise

No

Action

Sell Option &

Buy Stock

Cash $9,000 $0 $9,000 $0
Option $1,000 $0 $800 $0
Stock $0 $9,800 $0 $9,800
Dividend Receivable $0 $200 $0 $200
Total Equity $10,000 $10,000 $9,800 $10,000 less commissions/spreads

 

SCENARIO 2: Option Price Above Parity - $11.00
In the case of an option trading above parity, early exercise to capture the dividend may not be economically beneficial. In this scenario, early exercise would result in a loss of $100 in option time value, while selling the option and buying the stock, after commissions, may be less beneficial than taking no action. In this scenario, the preferable action would be No Action.

SCENARIO 2

Account

Components

Beginning

Balance

Early

Exercise

No

Action

Sell Option &

Buy Stock

Cash $9,000 $0 $9,000 $100
Option $1,100 $0 $1,100 $0
Stock $0 $9,800 $0 $9,800
Dividend Receivable $0 $200 $0 $200
Total Equity $10,100 $10,000 $10,100 $10,100 less commissions/spreads

  

NOTE: Account holders holding a long call position as part of a spread should pay particular attention to the risks of not exercising the long leg given the likelihood of being assigned on the short leg.  Note that the assignment of a short call results in a short stock position and holders of short stock positions as of a dividend Record Date are obligated to pay the dividend to the lender of the shares. In addition, the clearinghouse processing cycle for exercise notices does not accommodate submission of exercise notices in response to assignment.

As example, consider a credit call (bear) spread on the SPDR S&P 500 ETF Trust (SPY) consisting of 100 short contracts in the March '13 $146 strike and 100 long contracts in the March '13 $147 strike.  On 3/14/13, with the SPY Trust declared a dividend of $0.69372 per share, payable 4/30/13 to shareholders of record as of 3/19/13. Given the 3 business day settlement time frame for U.S. stocks, one would have had to buy the stock or exercise the call no later than 3/14/13 in order receive the dividend, as the next day the stock began trading Ex-Dividend. 

On 3/14/13, with one trading day left prior to expiration, the two option contracts traded at parity, suggesting maximum risk of $100 per contract or $10,000 on the 100 contract position. However, the failure to exercise the long contract in order to capture the dividend and protect against the likely assignment on the short contracts by others seeking the dividend created an additional risk of $67.372 per contract or $6,737.20 on the position representing the dividend obligation were all short calls assigned.  As reflected on the table below, had the short option leg not been assigned, the maximum risk when the final contract settlement prices were determined on 3/15/13 would have remained at $100 per contract.

Date SPY Close March '13 $146 Call March '13 $147 Call
March 14, 2013 $156.73 $10.73 $9.83
March 15, 2013 $155.83   $9.73 $8.83

Please note that if your account is subject to tax withholding requirements of the US Treasure rule 871(m), it may be beneficial to close a long option position before the ex-dividend date and re-open the position after ex-dividend.

For information regarding how to submit an early exercise notice please click here

The above article is provided for information purposes only as is not intended as a recommendation, trading advice nor does it constitute a conclusion that early exercise will be successful or appropriate for all customers or trades. Account holders should consult with a tax specialist to determine what, if any, tax consequences may result from early exercise and should pay particular attention to the potential risks of substituting a long option position with a long stock position.

Expiration & Corporate Action Related Liquidations

Background: 

In addition to the policy of force liquidating client positions in the event of a real-time margin deficiency, IB will also liquidate positions based upon certain expiration or corporate action related events which, after giving effect to, would create undue risk and/or operational concerns.  Examples of such events are outlined below.

Option Exercise

IB reserves the right to prohibit the exercise of stock options and/or close short options if the effect of the exercise/assignment would be to place the account in margin deficit. While the purchase of an option generally requires no margin since the position is paid in full, once exercised the account holder is obligated to either pay for the ensuing long stock position in full (in the case of a call exercised in a cash account or stock subject to 100% margin) or finance the long/short stock position (in the case of a call/put exercised in a margin account).  Accounts which do not have sufficient equity on hand prior to exercise introduce undue risk should an adverse price change in the underlying occur upon delivery. This uncollateralized risk can be especially pronounced and may far exceed any in-the-money value the long option may have held, particularly at expiration when clearinghouses automatically exercise options at in-the-money levels as low as $0.01 per share.

Take, for example, an account whose equity on Day 1 consists solely of 20 long $50 strike call options in hypothetical stock XYZ which have closed at expiration at $1 per contract with the underlying at $51. Assume under Scenario 1 that the options are all auto-exercised and XYZ opens at $51 on Day 2. Assume under Scenario 2 that the options are all auto-exercised and XYZ opens at $48 on Day 2.

Account Balance Pre-Expiration

Scenario 1 - XYZ Opens @ $51

Scenario 2 - XYZ Opens @ $48
Cash
$0.00 ($100,000.00) ($100,000.00)
Long Stock   $0.00 $102,000.00 $96,000.00

Long Option*

$2,000.00 $0.00 $0.00
Net Liquidating Equity/(Deficit) $2,000.00 $2,000.00 ($4,000.00)
Margin Requirement
$0.00 $25,500.00 $25,500.00
Margin Excess/(Deficiency) $0.00 ($23,500.00) ($29,500.00)

*Long option has no loan value.
 

To protect against these scenarios as expiration nears, IB will simulate the effect of expiration assuming plausible underlying price scenarios and evaluating the exposure of each account assuming stock delivery. If the exposure is deemed excessive, IB reserves the right to either: 1) liquidate options prior to expiration; 2) allow the options to lapse; and/or 3) allow delivery and liquidate the underlying at any time.  In addition, the account may be restricted from opening new positions to prevent an increase in exposure. IB determines the number of contracts that will be lapsed by IB/auto-exercised shortly after the end of trading on the date of expiration. The effect of any after hours trading you conduct on that day may not be taken into account in this exposure calculation.

While IB reserves the right to take these actions, account holders are solely responsible for managing the exercise/assignment risks associated with the positions in their accounts. IB is under no obligation to manage such risks for you.

IB also reserves the right to liquidate positions on the afternoon before settlement if IB’s systems project that the effect of settlement would result in a margin deficit. To protect against these scenarios as expiration nears, IB will simulate the effect of expiration assuming plausible underlying price scenarios and evaluating the exposure of each account after settlement.  For instance, if IB projects that positions will be removed from the account as a result of settlement (e.g., if options will expire out of the money or cash-settled options will expire in the money), IB’s systems will evaluate the margin effect of those settlement events.

If IB determines the exposure is excessive, IB may liquidate positions in the account to resolve the projected margin deficiency.  Account holders may monitor this expiration related margin exposure via the Account window located within the TWS. The projected margin excess will be displayed on the line titled “Post-Expiry Margin” (see below) which, if negative and highlighted in red indicates that your account may be subject to forced position liquidations. This exposure calculation is performed 3 days prior to the next expiration and is updated approximately every 15 minutes.  Note that certain account types which employ a hierarchy structure (e.g., Separate Trading Limit account) will have this information presented only at the master account level where the computation is aggregated.

Note that IB generally initiates expiration related liquidations 2 hours prior to the close, but reserves the right to begin this process sooner or later should conditions warrant. In addition, liquidations are prioritized based upon a number of account-specific criteria including the Net Liquidating Value, projected post-expiration deficit, and the relationship between the option strike price and underlying.

 

Call Spreads in Advance of Ex-Dividend Date

In the event that you are holding a call spread (long and short calls having the same underlying) prior to an ex-dividend date in the underlying, and if you have not liquidated the spread or exercised the long call(s), IB reserves the right to: i) exercise some or all of the long call(s); and/or ii) liquidate (i.e., close out) some or all of the spreads - if IB, in its sole discretion, anticipates that: a) the short call(s) is (are) likely to be assigned; and b) your account would not ave sufficient equity to satisfy the liability to pay the dividend or to satisfy margin requirements generally.  In the event that IB exercises the long call(s) in this scenario and you are not assigned on the short call(s), you could suffer losses. Likewise, if IB liquidates some or all of your spread position, you may suffer losses or incur an investment result that was not your objective.

In order to avoid this scenario, you should carefully review your option positions and your account equity prior to any ex-dividend date of the underlying and you should manage your risk and your account accordingly.

 

Physically Delivered Futures

With the exception of certain futures contracts having currencies as their underlying, IB generally does not allow clients to make or receive delivery of the underlying for physically settled futures or futures option contracts. To avoid deliveries in an expiring contract, clients must either roll the contract forward or close the position prior to the Close-Out Deadline specific to that contract (a list of which is provided on the website). 

Note that it is the client’s responsibility to be aware of the Close-Out Deadline and physically delivered contracts which are not closed out within the specified time frame may be liquidated by IB without prior notification.

Overview of SEC Fees

Under Section 31 of the Securities Exchange Act of 1934, U.S. national securities exchanges are obligated to pay transaction fees to the SEC based on the volume of securities that are sold on their markets. Exchange rules require their broker-dealer members to pay a share of these fees who, in turn, pass the responsibility of paying the fees to their customers.

This fee is intended to allow the SEC to recover costs associated with its supervision and regulation of the U.S. securities markets and securities professionals. It applies to stocks, options and single stock futures (on a round turn basis); however, IB does not pass on the fee in the case of single stock futures trades.  Note that this fee is assessed only to the sale side of security transactions, thereby applying to the grantor of an option (fee based upon the option premium received at time of sale) and the exerciser of a put or call assignee (fee based upon option strike price).

For the fiscal year 2016 the fee was assessed at a rate of $0.0000218 per $1.00 of sales proceeds, however, the rate is subject to annual and,in some cases, mid-year adjustments should realized transaction volume generate fees sufficiently below or in excess of targeted funding levels.1

Examples of the transactions impacted by this fee and sample calculations are outlined in the table below.

Transaction

Subject to Fee?

Example

Calculation

Stock Purchase

No

N/A

N/A

Stock Sale (cost plus commission option)

Yes

Sell 1,000 shares MSFT@ $25.87

$0.0000218 * $25.87 * 1,000 = $0.563966

Call Purchase

No

N/A

N/A

Put Purchase

No

N/A

N/A

Call Sale

Yes

Sell 10 MSFT June ’11 $25 calls @ $1.17

$0.0000218 * $1.17 * 100 * 10 = $0.025506

Put Sale

Yes

Sell 10 MSFT June ’11 $25 puts @ $0.41

$0.0000218 * $0.41 * 100 * 10 = $0.008938

Call Exercise

No

N/A

N/A

Put Exercise

Yes

Exercise of 10 MSFT June ’11 $25 puts

$0.0000218 * $25.00 * 100 * 10 = $0.545

Call Assignment

Yes

Assignment of 10 MSFT June ’11 $25 calls

$0.0000218 * $25.00 * 100 * 10 = $0.545

Put Assignment

No

N/A

N/A

 

1Information regarding current Section 31 fees may be found on the SEC's Frequently Requested Documents page located at: http://www.sec.gov/divisions/marketreg/mrfreqreq.shtml#feerate

 

 

FAQs - U.S. Securities Option Expiration

Overview: 

The following page has been created in attempt to assist traders by providing answers to frequently asked questions related to US security option expiration, exercise, and assignment.  Please feel free to contact us if your question is not addressed on this page or to request the addition of a question and answer. 

Click on a question in the table of contents to jump to the question in this document.

Table Of Contents:

How do I provide exercise instructions?

Do I have to notify IBKR if I want my long option exercised?

What if I have a long option which I do not want exercised?

What can I do to prevent the assignment of a short option?

Is it possible for a short option which is in-the-money not to be assigned?

What happens if I have a spread position with an in-the-money option and an out-of-the-money option?

Can IBKR exercise the out-of-the-money long leg of my spread position only if my in-the-money short leg is assigned?

What happens to my long stock position if a short option which is part of a covered write is assigned?

Am I charged a commission for exercise or assignments?

What happens if I am unable to meet the margin requirement on a stock delivery resulting from an option exercise or assignment?

 

Q&A:

How do I provide exercise instructions?
Instructions are to be entered through the TWS Option Exercise window. Procedures for exercising an option using the IBKR Trader Workstation can be found in the TWS User's Guide.

Important Note: In the event that an option exercise cannot be submitted via the TWS, an option exercise request with all pertinent details (including option symbol, account number and exact quantity), should be created in a ticket via the Account Management window. In the Account Management Message Center click on "Compose" followed by "New Ticket". The ticket should include the words "Option Exercise Request" in the subject line. Please provide a contact number and clearly state in your ticket why the TWS Option Exercise window was not available for use.

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Do I have to notify IBKR if I want my long option exercised?

In the case of exchange listed U.S. securities options, the clearinghouse (OCC) will automatically exercise all cash and physically settled options which are in-the-money by at least $0.01 at expiration (e.g., a call option having a strike price of $25.00 will be automatically exercised if the stock price is $25.01 or more and a put option having a strike price of $25.00 will be automatically exercised if the stock price is $24.99 or less). In accordance with this process, referred to as exercise by exception, account holders are not required to provide IBKR with instructions to exercise any long options which are in-the-money by at least $0.01 at expiration. 

Important Note: in certain situations (e.g., underlying stock halt, corporate action), OCC may elect to remove a particular class of options from the exercise by exception process, thereby requiring the account holder to provide positive notice of their intent to exercise their long option contracts regardless of the extent they may be in-the-money. In these situations, IBKR will make every effort to provide advance notice to the account holder of their obligation to respond, however, account holders purchasing such options on the last day of trading are not likely to be afforded any notice.

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What if I have a long option which I do not want exercised?
If a long option is not in-the-money by at least $0.01 at expiration it will not be automatically exercised by OCC. If it is in-the-money by at least that amount and you do not wish to have it exercised, you would need to provide IBKR with contrary instructions to let the option lapse. These instructions would need to be entered through the TWS Option Exercise window prior to the deadline as stated on the IBKR website.

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What can I do to prevent the assignment of a short option?
The only action one can take to prevent being assigned on a short option position is to buy back in the option prior to the close of trade on its last trading day (for equity options this is usually the Friday preceding the expiration date although there may also be weekly expiring options for certain classes). When you sell an option, you provided the purchaser with the right to exercise which they generally will do if the option is in-the-money at expiration.

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Is it possible for a short option which is in-the-money not to be assigned?
While is unlikely that holders of in-the-money long options will elect to let the option lapse without exercising them, certain holders may do so due to transaction costs or risk considerations. In conjunction with its expiration processing, OCC will assign option exercises to short position holders via a random lottery process which, in turn, is applied by brokers to their customer accounts. It is possible through these random processes that short positions in your account be part of those which were not assigned.

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What happens if I have a spread position with an in-the-money option and an out-of-the-money option?
Spread positions can have unique expiration risks associated with them. For example, an expiring spread where the long option is in-the-money by less than $0.01 and the short leg is in-the-money more than $0.01 may expire unhedged. Account holders are ultimately responsible for taking action on such positions and responsible for the risks associated with any unhedged spread leg expiring in-the-money.

 

Can IBKR exercise the out-of-the-money long leg of my spread position only if my in-the-money short leg is assigned?
No. There is no provision for issuing conditional exercise instructions to OCC. OCC determines the assignment of options based upon a random process which is initiated only after the deadline for submitting all exercise instructions has ended. In order to avoid the delivery of a long or short underlying stock position when only the short leg of an option spread is in-the-money at expiration, the account holder would need to either close out that short position or consider exercising an at-the-money long option.

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What happens to my long stock position if a short option which is part of a covered write is assigned?
If the short call leg of a covered write position is assigned, the long stock position will be applied to satisfy the stock delivery obligation on the short call. The price at which that long stock position will be closed out is equal to the short call option strike price.

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Am I charged a commission for exercise or assignments?
There is no commissions charged as the result of the delivery of a long or short position resulting from option exercise or assignment of a U.S. security option (note that this is not always the case for non-U.S. options).

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What happens if I am unable to meet the margin requirement on a stock delivery resulting from an option exercise or assignment?
You should review your positions prior to expiration to determine whether you have adequate equity in your account to exercise your options. You should also determine whether you have adequate equity in the account if an in-the-money short option position is assigned to your account. You should also be aware that short options positions may be exercised against you by the long holder even if the option is out-of-the-money.

If you anticipate that you will be unable to meet the margin requirement on a stock delivery resulting from an option exercise or assignment, you should either close positions or deposit additional funds to your account to meet the anticipated post-delivery margin requirement.

IBKR reserves the right to prohibit the exercise of stock options and/or close short options if the effect of the exercise/assignment would be to place the account in margin deficit. To protect against these scenarios as expiration nears, IBKR will simulate the effect of expiration assuming plausible underlying price scenarios and evaluating the exposure of each account assuming stock delivery. If the exposure is deemed excessive, IBKR reserves the right to either:

  • Liquidate options prior to expiration. Please note: While IBKR retains the right to liquidate at any time in such situations, liquidations involving US security positions will typically begin at approximately 9:40 AM ET as of the business day following expiration;
  • Allow the options to lapse; and/or
  • Allow delivery and liquidate the underlying at any time.

In addition, the account may be restricted from opening new positions to prevent an increase in exposure. IBKR determines the number of contracts that will be lapsed by IBKR/auto-exercised shortly after the end of trading on the date of expiration. The effect of any after hours trading you conduct on that day may not be taken into account in this exposure calculation.

While IBKR reserves the right to take these actions, account holders are solely responsible for managing the exercise/assignment risks associated with the positions in their accounts. IBKR is under no obligation to manage such risks for you.

For more information, please see Expiration & Corporate Action Related Liquidations

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Overview of Fees

Clients and as well as prospective clients are encouraged to review our website where fees are outlined in detail. An overview of the most common fees is provided below:

 

1. Commissions - vary by product type and listing exchange and whether you elect a bundled (all in) or unbundled plan. In the case of US stocks, for example, we charge $0.005 per share with a minimum per trade of $1.00.


2. Interest - interest is charged on margin debit balances and IB uses internationally recognized benchmarks on overnight deposits as a basis for determining interest rates. We then apply a spread around the benchmark interest rate (“BM”) in tiers, such that larger cash balances receive increasingly better rates, to determine an effective rate.  For example, in the case of USD denominated loans, the benchmark rate is the Fed Funds effective rate and a spread of 1.5% is added to the benchmark for balances up to $100,000.  In addition, individuals who short stock should be aware of special fees expressed in terms of daily interest where the stock borrowed to cover the short stock sale is considered 'hard-to-borrow'. 

 3. Exchange Fees - again vary by product type and exchange. For example, in the case of US securities options, certain exchanges charge a fee for removing liquidity (market order or marketable limit order) and provide payments for orders which add liquidity (limit order). In addition, many exchanges charge fees for orders which are canceled or modified.



4. Market Data - you are not required to subscribe to market data through IB but if you do you may incur a monthly fee which is dependent upon the vendor exchange and their subscription offering. We provide a Market Data Assistant tool which assists in selecting the appropriate market data subscription service available based upon the product you wish to trade. To access, log into Account Management click on the Support section and then the Market Data Assistant link.



5. Minimum Monthly Activity Fee - as we cater to active traders we require accounts to generate a minimum in commissions each month or be charged the difference as an activity fee. The minimum is $10 per month for accounts maintaining a balance above $2,000 and $20 per month for accounts whose equity has fallen below $2,000.



6. Miscellaneous - IB allows for one free withdrawal per month and charges a fee for each subsequent withdrawal. In addition, there are certain pass-through fees for trade bust requests, options and futures exercise & assignments and ADR custodian fees.



For additional information, we recommend visiting our website at ww.interactivebrokers.com and selecting any of the options from the Pricing menu option.

 

Information Regarding Physical Delivery Rules

IB does not have the facilities necessary to accommodate physical delivery.  For futures contracts that are settled by actual physical delivery of the underlying commodity (physical delivery futures), account holders may not make or receive delivery of the underlying commodity.

It is the responsibility of the account holder to make themselves aware of the close-out deadline of each product.  If an account holder has not closed out a position in a physical delivery futures contract by the close-out deadline, IB may, without additional prior notification, liquidate the account holder’s position in the expiring contract.  Please note that liquidations will not otherwise impact working orders; account holders must ensure that open orders to close positions are adjusted for the actual real-time position.

To avoid deliveries in expiring futures contracts, account holders must roll forward or close out positions prior to the Close-Out Deadline. 

Below provides an overview of the relevant close-out deadlines of futures and futures options contracts. This information is also available through Account Management. After accessing Account Management, select the book icon in the upper right of the screen and navigate through Trade > Delivery and Exercise.

The relevant First Notice Date, First Position Date and Last Trading Date information may be obtained through the IB website by navigating to Help and Contacts > Contract Search. Any date information provided is on a best-efforts basis and should be verified by reviewing the contract specifications available on the exchange's website.

 

Summary of Physical Delivery Futures Policies

Contract

Delivery Permitted

Close-Out Deadline

ZB, ZN, ZF (ECBOT)

No

2 hours before the end of open outcry trading on the business day prior to First Notice Day (longs) or Last Trading Day (shorts)

ZT (ECBOT) futures, Japanese Govt Bond Futures (JGB)

No

End of second business day prior to the First Position Day (longs) or end of second business day prior to Last Trading Day (shorts)

EUREXUS futures

No

End of business day prior to the First Position Day (longs) or Last Trading Day (shorts)

EUREXUS 2 yr Jumbo bond (FTN2) and 3 yr bond (FTN3) futures

No

End of the second business day prior to the First Position Day (longs) or Last Trading Day (shorts)

IPE contracts (GAS, NGS)

No

End of the second business day prior to the First Position Day (longs) or day prior to Last Trading Day (shorts)

GLOBEX LIVE CATTLE (LE)

No

End of the second business day prior to the First Intent Day (longs) or Last Trading Day (shorts)

GLOBEX NOK, SEK, PLZ, CZK, ILS, KRW and HUF, and correspondent Euro rates

No

End of the fifth business day prior to the Last Trading Day for both longs and shorts

GBL, GBM, GBS, GBX (Eurex), CONF (SOFFEX)

No

2 hours before the end of trading on the last trading day

GLOBEX currency futures (EUR, GBP, CHF, AUD, CAD, JPY, HKD)

Yes*

Not applicable*

GLOBEX Ethanol futures (ET)

No

End of the fifth business day prior to the First Position Day (longs) or Last Trading Day (shorts)

NG futures (NYMEX) No End of the business day prior to the First Position Day or last trading day (whichever comes first) (longs) or end of business day prior to Last Trading Day (shorts)

All other contracts

No

End of the second business day prior to the sooner of First Position Day or Last Trading Day (longs) or end of the second business day prior to the Last Trading Day (shorts)

*As Cash and IRA accounts are restricted from holding foreign currencies, the liquidation schedule outlined above for All other contracts will also apply to Cash and IRA accounts for these foreign currency products.

Summary of Physical Delivery Future Options Policies

Contract

Delivery Permitted

Close-Out Deadline

OZB, OZN, OZF, OZT (ECBOT)                                               

No

4 hours before the end of open outcry trading on the business day prior to First Notice Day (longs) or Last Trading Day (shorts)

All other contracts

Yes

Options will be allowed to expire into futures (or, if out-of-the-money, expire worthless), if the options expiration date is prior to the underlying futures’ First Position Day. If there is a resulting futures position, it will then be subject to the respective Close-Out Deadlines, as detailed above.

 

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