Interactive brokers options expiration effects
In these situations, IB 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.
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 IB with contrary instructions to let the option lapse. 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.
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. Spread positions can have unique expiration risks associated with them. 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.
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.
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. 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.
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. 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: In addition, the account may be restricted from opening new positions to prevent an increase in exposure. The effect of any after hours trading you conduct on that day may not be taken into account in this exposure calculation. IB is under no obligation to manage such risks for you.
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. 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. 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.