What if I cant Sell to Close option, and the broker automatically exercises option and i dont have the funds?

3 responses so far ↓

• 1 Yardbird // Jul 23, 2008

  If you have a call option and it's in the money at closing, the broker will exercise for you. Most brokers require a margin account for options, so the broker would buy the stock on margin if you don't have cash.

  If that purchase takes you over your margin limit, then the broker would probably give you a "Margin call," telling you to sell some stocks to cover. And if he can't contact you, he might sell some stocks for you.

  But that's really a question you should ask your broker, since every broker has different policies.

• 2 Oh Boy! // Jul 23, 2008

  Ask your broker. Assuming the options have reasonable volume you'll be able to sell to close.

• 3 zman492 // Jul 23, 2008

  (1) Your broker will never automatically exercise an option. If an option is in the money by at least one cent at expiration the Option Clearing Corporation (OCC) will exercise it on your behalf unless you have given explicit instructions not to exercise it.

  (2) The odds that you could not sell an in the money option are very low, so the situation you are describing would be unlikely, but possible.

  (3) Most brokers allow long option positions in either a cash or a margin account. If it is a cash account you are supposed to deposit the funds to pay for the stock within three day. You should contact your broker before the market opens on Monday to explain the situation and ask what you need to do. The broker will probably have you sell on the open Monday morning. If it is a margin account the broker will lend you the money to buy the stock.

  (4) The important thing to remember is that you never have to be in this situation. If you tell your broker you do not want the options exercised automatically the broker will inform the OCC and they will be allowed to expire worthless. I believe different brokerages have different deadlines for the latest time you can inform the brokerage not to exercise the option, but I do not think any of them have set the deadline before 4:30 Eastern time. So, even if the stock suddenly moves into the money just before the market closes at 4:00 Eastern time, you still have time to notify your broker you do not want the options to be automatically exercised.

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