Options questions

OK - so i DID find the 'new thread' button eventually .

Just 2 quick, possibly stupid questions about Options. Greatly appreciate any replies

1. What happens if someone buys some options in XYZ just before the conversion date with little time to pay the exercise cost?? Do you lose them, or is there some facility to accommodate that. >>>>>>>>>

>>> 2. that leads into - methods of payment to convert options.
Are there electronic (ie fast) payment methods (ie Bpay or net transfer) available for option conversion... always?? sometimes?? never??
Can I exercise my chess sponsored options via my comsec account?

- I've never noticed e-payments, but then I havn't exercised any options recently either...

My problem is that I'm in Japan. In the past, in Oz, I have simply sent a cheque with the company forms. But being in Japan there is significant time lag with paperwork through the mail both ways etc.

So... if I wanna buy some options in XYZ with a view to either selling before conversion date or exercising them myself. I'm disadvantaged somewhat if I have to rely on the interbational postal system.

Dukey said:

...1. What happens if someone buys some options in XYZ just before the conversion date with little time to pay the exercise cost?? Do you lose them, or is there some facility to accommodate that. >>>>>>>>>

Click to expand...

Dukey, Oz options are settled the next trading day (T+1) whereas shares are T+3 so there is a little bit of time to get funds into the account, if necessary. However, it is best to find out how your broker would handle exercise / assignment / automatic exercise of long options, etc as broker policies do vary considerably. Big variations in fees as well between brokers - some are unreasonably high for exercise IMO!

>>> 2. that leads into - methods of payment to convert options.
Are there electronic (ie fast) payment methods (ie Bpay or net transfer) available for option conversion... always?? sometimes?? never??
Can I exercise my chess sponsored options via my comsec account?

Click to expand...

One of the online brokers we use allows exercise/assignment of an option even if there are insufficient funds in the account to purchase the shares (eg. in the case of long calls) PROVIDED the share position is closed or funds transferred by the time required by the broker. I haven't come across any Oz options brokers that don't accept some sort of electronic transfer of funds - especially for deposits.

Some brokers charge fail fees if there are insufficient funds in the account, so it pays to know exactly how your broker handles all the different scenarios

I don't know how Commsec handles options exercise/assignment. We had an account with AOT when Commsec bought them out a couple of years ago, but they raised the exercise / assignment fee from AOT's $30 flat rate to something like .325% based on the price of the underlying. As an example. if 10 CBA calls are exercised / assigned and based on say a $50 strike, this would total $1625 in broker fees - totally unacceptable so we did not stick around!

My problem is that I'm in Japan. In the past, in Oz, I have simply sent a cheque with the company forms. But being in Japan there is significant time lag with paperwork through the mail both ways etc.

So... if I wanna buy some options in XYZ with a view to either selling before conversion date or exercising them myself. I'm disadvantaged somewhat if I have to rely on the interbational postal system.

Click to expand...

Perhaps you should check out other Oz brokers who have kept up with the times and are using electronic fund transfers and online trading to find out if you can operate an account from Japan.

Anyway, this is just my . As the answers to your questions are pretty much broker specific, it is essential to know exactly how your chosen broker will handle these issues.

Dukey said:

OK - so i DID find the 'new thread' button eventually .

Just 2 quick, possibly stupid questions about Options. Greatly appreciate any replies

1. What happens if someone buys some options in XYZ just before the conversion date with little time to pay the exercise cost?? Do you lose them, or is there some facility to accommodate that. >>>>>>>>>

>>> 2. that leads into - methods of payment to convert options.
Are there electronic (ie fast) payment methods (ie Bpay or net transfer) available for option conversion... always?? sometimes?? never??
Can I exercise my chess sponsored options via my comsec account?

- I've never noticed e-payments, but then I havn't exercised any options recently either...

My problem is that I'm in Japan. In the past, in Oz, I have simply sent a cheque with the company forms. But being in Japan there is significant time lag with paperwork through the mail both ways etc.

So... if I wanna buy some options in XYZ with a view to either selling before conversion date or exercising them myself. I'm disadvantaged somewhat if I have to rely on the interbational postal system.

Click to expand...

Dukey
The reply from Sails is in relation to exchange traded options & you seem to be talking about company issued options. If you are referring to company issued options, I'll just add this bit.

Company traded options are generally suspended from trading 5 trading days or 1 week before they expire.

Generally you will be required to send a cheque and the original signed exercise notice, as they normally wont accept fax copies, but 1 week should be sufficient even from Japan. Generally the company wants the funds from the opies and if they see it postmarked in Japan a week prior to expiry I'm sure they will put it through, even if it's a few days late. Although there's no guarantee, so it would be best to send it by some sort of express service with tracking and delivery confirmation.

Thanks DI - I think you are right in that I wrongly assumed Dukey was asking about ETO's. Never mind, hopefully the post might be of help to someone else in the future...

Sails & DI
Thanks heaps for your replies/ answers guys - My Q?? pretty well answered between the two of you I think. I was referring to the 'exercising' (rather than 'on market trading') of Company issued options.

Sooo - It seems that for company issued options - the company 'exercise' form must be used - by snail mail.
Was hoping there might be some easier - more modern options (as in methods!!) available - but ... as Poor Ned said...'such is life'. Will have to cope with snail mail, or just buy the full shares if time looks like an issue.
thanks again ... D

Contact the company / share registery, you never know they may have advanced far enough to accept BPAY with reference being your HIN?

Thanks one and all ... Got anothery for youse...

As the expiration date approaches - say in the last week or so before trading 'XYZOptions' stops - what happens to the share price? (generally speaking)

eg. Does it 'hold up' relative to regular XYZ shares or does it tend to trend down a little because of 'time stress factors' (real or percieved.) due to the fast approaching expiry/exercise date ???

Once again - appreciate any opinions.

- I did buy some HLX options (& regular shares too) this morn.
& I like what I see there - go check out the thread.

Of the companies that have had options outstanding, I've noticed that their tends to be a fair amount of weakness in the underlying into the expiry and a little after.
Mostly people sell underlying and the options to fund conversion of the options.

Also depends in far in the money the stock is.

I have seen good arbitrage plays on ord's v the options a few times too especially when the options are dumped just before expiry