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Msg  17349 of 17646  at  9/15/2021 12:03:03 PM  by


The following message was updated on 9/15/2021 12:15:02 PM.

Warning on 9/17 options

 The options which we all look at as expiring at 4:00 pm et on Friday at the end of regular trading hours don't really expire until the following  day. True, the options themselves cannot be traded after 4:00 pm on Friday but they can be exercised between 4:00 and 5:00 pm via telephone to Fidelity. I assume the same is true at other brokers.
Thus an option which is out of the money at 4:00 pm Friday may become in the money before 5:00 pm due to after hours stock trading.
I bring this up because the draft agenda for Friday's vaccine advisory committee meeting has "discussion and voting" to begin at 2:25 pm and run for 120 minutes with adjournment at 4:45 pm. Well, 2 hours from 2:25 is 4:25. It is entirely possible that a vote to recommend approval of PFE's booster could come after 4:00 pm and before 5:00 pm.
To illustrate: Suppose you are long Moderna's Friday's 450 call and the stock closes at 448 at 4:00 pm. You think your call is worthless so you shut down your computer. Then the advisory committee unanimously votes to approve PFE's booster at 4:10 pm. Moderna stock immediately pops to 465 after hours. If your broker is Fidelity, you have until 5:00 pm to call them and instruct them to exercise.
I just got off the phone with Fidelity. Their auto-exercise rule ends at 4:00 pm. If an out of the money option at 4:00 pm becomes in the money before 5:00 pm, Fidelity does nothing unless you call them. Fidelity's computer does not track after hours trading prices for purposes of determining whether an expiring option is in or out of the money.
Likewise when you are short the option. If the short side of the above illustration think's he's no longer short at 4:00 pm, he's wrong. If the short side sells the underlying shares at 465 in aftermarket, he could find himself being called on a naked option and Monday morning opens at 480. 
The same applies to puts. Fidelity will automatically exercise an in the money option if and only if it's in the money at 4:00 pm. If the option is out of the money at 4:00 pm and becomes in the money due to after hours trading, it can still be exercised before 5:00 pm but only by overt action by the account owner. 

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Msg # Subject Author Recs Date Posted
17350 Re: Warning on 9/17 options esdbass 0 9/15/2021 12:22:40 PM
17354 Re: Warning on 9/17 options dar200 2 9/15/2021 8:26:28 PM

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