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Nope it is not true. A long cannot be forced to early exercise or even be
forced to exercise an ITM on expiration. THE OCC rule about automatic exercise
at expiration is waived if the long notifies their broker.
David Donhoff wrote:
> AAAAHhhhhhh.... HERE is the misconception which is absolutely untrue; that
> you can't "be forced to exercise a long option position."
>
> The catch is whether the option is In-The-Money or not. If it is, it can be
> randomly exercised... even if you are long! The reason, ostensibly, is that
> since these are illiquid relative to ATM options, the individuals on the
> floor will sometimes want to "close" the open positions in their accounts to
> avoid surprises going into expiration. The exchange rules have been set up
> to allow this to happen. Granted, this type of exercise is more rare, and
> the key is how FAR ITM your option is... but it does happen without anybody
> screwing up.
>
> I agree, it IS strange.... but definitely true!
> Any floor traders out there want to corroborate this with Exchange chapter &
> verse? (Calling DrOEX?)
>
> Big Profits to you,
> Dave Donhoff
>
> PS. there were no short Puts involved... obviously.
>
> -----Original Message-----
> From: steven poser <swp@xxxxxxxxxx>
> To: deltaforce@xxxxxxxxxxxxx <deltaforce@xxxxxxxxxxxxx>
> Date: Friday, August 28, 1998 4:20 AM
> Subject: Re: LCOS Bull-Debit Spread answers
>
> >David - There had to have been a short put in that strategy somewhere
> >for you to get put with stock, even if the net position was long. Nobody
> >can force you to excercise a long position in options EXCEPT that the
> >exchanges automatically exercise open options positions that are in the
> >money at expiry. If you have ever been exercised otherwise, somebody
> >messed up.
> >
> >Steve
> >
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