General Questions

Thanks for your reply.

Do you mean I can tell my broker (I have Ameritrade) "please do not exercise my contract if it's in the money by 1 cent" and they would accept it and not exercise and not charge commissions?  I thought the only choices were get assigned or sell the contract if I had bought a call or buy the contract if I had sold a naked put.

I'm in the 1-cent situation right now but a little different.  I have sold 7 AKS JUN08 70 covered Calls.  It's trading around 70.  There's a chance that it could be in or
out of the money by 1 cent.  Very hard to see the final trade of the day.  If it ends at 69.99 or lessI have no problem but if it ends at 70.01 or a tiny bit more, I would
like to keep the stock (and then sell Jul calls) so I would most likely buy back the contract but if it's trading very close to 70 can I tell the broker that I don't want to sell my shares if 1-cent in the money after the market closes? And does after-hours trading count toward having the final
price of the stock?

Thanks JP


You have it all wrong.  And that saddens me.  Let's start at the beginning.

1) Yes you can notify your broker not to exercise any option THAT YOU OWN.  But, you cannot do it in advance.  It must be on expiration day only.  Most people send such notices to the broker after the market closes for the day, but there is a time limit. Thus YOU MUST ASK YOUR BROKER HOW THEY WANT YOU TO SUBMIT SUCH 'DO NOT EXERCISE' NOTICES, and the time period during which they accept such notices.  Do it now, when not pressed for time.  Then keep the information handy.

2) You cannot tell them 'do not exercise if in the money by one cent.'  All you can tell them is 'Do not exercise.'

3) If you do give your broker such instructions and sell the options later that day, do not worry.  You no longer own the options and cannot exercise them.

4) In your situation, you SOLD the option.  You have NO rights.  You may not exercise a call you do not own.  You may not tell your broker not to allow the other party to exercise.  You have no rights at all.  You have two choices:  Buy back the option to close the position, or wait until next Monday (some brokers tell you Sunday) to discover whether you have been assigned an exercise notice.  Those are your ONLY two choices.

5) "if it's trading very close to 70 can I tell the broker that I don't want to sell my shares if 1-cent in the money after the market closes?"  Absolutely  not.  ONLY the option owner gets to decide.  Only the option owner has the choice.  The option seller has NO rights.  NONE.

6) You clearly don't want to sell your stock.  You should buy back the call at a low price and be done with it.  You can bid as low as $0.01, or any higher price.  If you do buy it today, you can sell the July today.  No need to wait until Monday.

7) The official closing price of the stock - as far as automatic exercise is concerned - is the official close on the NYSE.  After hours trades do not count.  But, if the stock rises after hours, the owner of an option that is out of the money HAS THE RIGHT TO NOTIFY THE BROKER THAT HE DOES WANT TO EXERCISE, even if it is out of the money.  That is his right and there is nothing you can do to prevent it.

8) Thus, your statement that if it's 69.99 or lower you are 'safe' is not quite accurate.


Mark D. Wolfinger
The Rookie's Guide to Options:
The Beginner's Handbook of Trading Equity Options