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Option questions

Discussion in 'Derivatives' started by Pat07350, May 15, 2019 at 5:02 PM.

  1. Pat07350

    Pat07350

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    Please help with 2 questions.

    1) If I’m long a call and it expires in the money am I automatically excercised and have to purchase the stock? If so what happens if I don’t have the money in the account.

    2)This from an option quiz. which of the following require margin to be lodged.
    A)bull put spread
    B)bull call spread
    C)bear put spread.

    Thanks in advance.
     
  2. Zaxon

    Zaxon The voice of reason

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    You have T+2 days to have the money in your account. If you transfer it from another bank account, it should appear in your trading account the next day, and your broker will be happy.
     
  3. Pat07350

    Pat07350

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    Thanks, and if I don’t stump up the cash they sell stock on my behalf? Do you know anything about the second question because I thought you always paid margin on any short option.
     
  4. Zaxon

    Zaxon The voice of reason

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    The shares will settle, since the broker will put up the cash. This also means when you sell shares, you don't have to worry if there's some loser on the other end who doesn't have the money and your sale falling through. That shouldn't ever happen.

    Essentially your account will be become overdrawn. They may charge you a fee. They will then demand you pay up (maybe within 24 hours, for instance). If you don't pay the cash within a short period, they may force sell the shares on you. I'd say it follows similar rules to a margin call in that regard.

    As to your second question, I'll let someone else answer that for you.
     
  5. cutz

    cutz

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    1) You wake up in the morning and you realize auto exercise has occurred.... dump that stock on the open and hope it gaps your way !!
    2) A.
     
  6. cutz

    cutz

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    Hey Pat,

    Did you pass the test ??
     
  7. Pat07350

    Pat07350

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    Hi, yes I did, thanks for asking. I have my account open now. i’m looking at selling calls on the xjo out of the money with short term expiry. What do u recommend. With this close election or a labour win I can see pullback Monday?
     
  8. cutz

    cutz

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    Well done,

    Me personally ? I do reckon the market feels a bit toppy... but probably can't really recommend naked short index calls, not enough fat built into the premiums at the moment...banks are starting to look ok, BHP, AGL ??? Thought ??
     
    Last edited: May 18, 2019 at 7:18 PM
  9. Pat07350

    Pat07350

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    You mean buy calls in banks under the share price? How far under and what expiry would you choose. Pick and bank as an example. Banks look cheap but with flat economy I don’t see huge growth but I do see them trading higher by year end
     
  10. cutz

    cutz

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    Hi.

    I think I may have mentioned it somewhere else but basically one of my positions is an iron fly on a bank, body strikes below underlying twice the volumes on the long put, I've been buying back/selling/buying back/selling the short put, timing not always spot on, the underlying is approaching the body strike so could be time to close out shortly as in rolling out and keeping the long puts.
     
    Last edited: May 19, 2019 at 4:54 PM
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