American Options Trading- Brokerage Entered Do Not Exercise Instead of Selling My Contracts Before Expiration

Personal Finance & Money Asked by DroppinTables on January 13, 2021

I made a stupid mistake trading options. It happened about a month ago, so I don’t recall my thought process at the time.

Anyway, I purchased multiple PUT contracts: NKLA SEPTEMBER 18 2020 $35
On September 18th, the contracts were in the money all day, and apparently I didn’t place an order to sell the contracts before the market closed on Friday. Again, I’m not sure what I was thinking, but usually the Brokerage sells the contacts before close, sometimes even when I would like to hold on to a contract for a few more hours. To my surprise the contracts were not sold, but I assumed somehow after settlement process, I would receive payment. To clarify, I did NOT have enough cash or margin to sell the underlying at $35. Instead, my order history stated that the contracts expired and there was no credit to my account for the ITM options.

After spending some time on the phone with the brokerage, they asked me if I called to place a "Do Not Exercise" request for those contracts. It turns out THEY placed a do not exercise on the contracts, instead of selling before close.

I understand that I should have been managing these contracts more carefully, but is this acceptable performance for a brokerage platform?

One Answer

When there is insufficient cash to support an assignment, some brokers close out ITM options around 3:30 PM on expiration day. That seems reasonable given the circumstances.

It troubles me that a brokerage firm could arbitrarily place a "Do Not Exercise" order on the position, leaving money on the table. I hate to promote conspiracies theories but I wonder if in doing so, they pocketed the money for themselves.

Clearly, you screwed up and it is clear from your explanation that you understand that. But it seems quite the screwing in return.

I don't know how you do it but I would attempt to determine if this behavior is allowed. I'd look at the fine print in you account agreement to see if it is spelled out that your broker can do this. IOW, did you sign such rights away? If not, I'd contact FINRA and see if they have anything to offer.

Answered by Bob Baerker on January 13, 2021

Add your own answers!

Related Questions

Multi-Factor Investing: Quality Stock / ETF

1  Asked on March 26, 2021 by simplethings


What is this bond notation?

1  Asked on March 26, 2021 by pintobox


Selling options

1  Asked on March 26, 2021


Ask a Question

Get help from others!

© 2022 All rights reserved. Sites we Love: PCI Database, MenuIva, UKBizDB, Menu Kuliner, Sharing RPP, SolveDir