Option settlement time

[benchmark]

Let's say that I have sold put option of company A with $8 strike expired today. The stock was at $10 at the close. After the market close, the company announced bad earning, and the stock dropped to $5. Can my counter part (i.e. the buyer of the put option) now exercise the option and force me to buy the stock at $8? 

 

https://www.investopedia.com/terms/e/expiration-time.asp This says that they can do it as long as it's before 5:30pm ET.

 

If this is true, this means that the after hour movement can change /impact the option holders' decision. Should all company just postpone their announcement after 5:30ET? 

[Sweet]

22 minutes ago, benchmark said:

Let's say that I have sold put option of company A with $8 strike expired today. The stock was at $10 at the close. After the market close, the company announced bad earning, and the stock dropped to $5. Can my counter part (i.e. the buyer of the put option) now exercise the option and force me to buy the stock at $8? 

 

https://www.investopedia.com/terms/e/expiration-time.asp This says that they can do it as long as it's before 5:30pm ET.

 

If this is true, this means that the after hour movement can change /impact the option holders' decision. Should all company just postpone their announcement after 5:30ET? 

I don’t know the answer, but investopedia says:

 

“public holders of option contracts must indicate their desire to exercise no later than 5:30 p.m. [Eastern Time] on the business day preceding the expiration date.”

 

Which would indicate no they cannot exercise the option after hours on the date of expiry.

[Dinar]

3 minutes ago, Sweet said:

I don’t know the answer, but investopedia says:

 

“public holders of option contracts must indicate their desire to exercise no later than 5:30 p.m. [Eastern Time] on the business day preceding the expiration date.”

 

Which would indicate no they cannot exercise the option after hours on the date of expiry.

You should check with your broker.  Because if the broker has to notify option clearing corporation by Saturday afternoon, then I guarantee you that for an important client, a firm will take requests up to last minute.

[lnofeisone]

3 hours ago, benchmark said:

Let's say that I have sold put option of company A with $8 strike expired today. The stock was at $10 at the close. After the market close, the company announced bad earning, and the stock dropped to $5. Can my counter part (i.e. the buyer of the put option) now exercise the option and force me to buy the stock at $8? 

 

https://www.investopedia.com/terms/e/expiration-time.asp This says that they can do it as long as it's before 5:30pm ET.

 

If this is true, this means that the after hour movement can change /impact the option holders' decision. Should all company just postpone their announcement after 5:30ET? 

Are there many companies that report on Friday at 530PM?

 

In the money, options get exercised unless you submit contrary exercise instructions. The brokers have to submit everything by 530PM EST but each broker can have its own deadline for exercising. To Dinar's point, if you are big and important, the broker deadline is arbitrary but 530PM EST is set by OCC and that's not moveable. 

[Dinar]

https://www.finra.org/rules-guidance/notices/information-notice-020321

 

I think that you are mistaken.  I think that options generally expire on a Saturday (following the third Friday of the month), so while many brokerage firms may have Friday cut-offs, if the OCC says that the cut-off is Saturday 4:30 pm CT, then you should assume that your option can get exercised on Saturday at 5pm EST.  After all, if I am a hedge fund with $5bn at GS prime, I am highly confident that GS will accommodate me and exercise at 5 pm EST on Saturday, if news came out Saturday in the morning.

[backtothebeach]

There is definitely after hours risk with options. Let us know how it goes ...

The usual cutoff for brokers to inform the OCC about option exercise is 5:30pm.

However there may be a grey area, where under special circumstances it can be even later (from https://www.finra.org/rules-guidance/rulebooks/finra-rules/2360)
 

(vii) Members may effect or amend exercise decisions for standardized equity options after the exercise cut-off time (but prior to expiration) under the following circumstances:

a. in order to remedy mistakes or errors made in good faith;

b. to take appropriate action as the result of a failure to reconcile unmatched option transactions; or

c. where extraordinary circumstances restricted a customer's or member's ability to inform the respective member of such decisions (or a member's ability to receive such decisions) by the cut-off time.

The burden of establishing an exception for a proprietary or customer account of a member rests solely on the member seeking to rely on such exception.

Edited March 18, 2023 by backtothebeach