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AS a floor trader, the OEX deeps were always a problem. If you were ratio back
spread, the out of the moneys against the deeps, you always had to worry about
early exercise, no matter what the premium. Imagine being back spread Wed. your
deeps are exercised that evening and you come in with cash and naked long the
out of the moneys. A formula for disaster. Ira.
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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