It can be a frightening thing to get get a call from your broker that tells you your contracts are close to out of the money! Buy more than likely it will all happen almost automatically if you fall out of line.
Maybe you’ve been hit by Automatic Options Triggers?
If you are a more experienced trader then is something you may be very familiar with. Also more than likely you learned from it. It’s likely that your broker attributes automated decision making on your contracts that expire in the money without being sold or closed by you before the due date. What can catch you off guard is if your deals are as little as 1 cent in debt your broker will likely resolve all those deals on the following day. They will likely run through your trading account to cover all the stocks you now need to now MAKE GOOD ON. Let’s say you had 50 contracts at the strike of $30 a share you need to come up with 150,000. Fail to have enough liquidity or ready assets there in your account to resolve the options position into stocks and you are in a world of hurt, yes you may have big trouble with your account along with getting banned.
So How Do You Avoid The Issue Of Contracts Close To The Money Expiring Soon?
This is something you better be on top of. Make sure to act on them prior to the time running out. But of course, this can be easier said than done. How are you going to do that if the market is not full of liquidity swilling around. This of course can be due to the contract being only in the money by a cent or two? Stress plus.. The sooner you act the more chance you have of moving the contract. If your at the wire it’s going to be hard.
Contact Your Broker!
They are of course dealing with these issue all the time and have a lot more levers to pull than you will be aware of. The best thing you can do is get on the phone and discuss the issue and ask for a solution. Failure to do this can leave you in a options traders worst nightmare. It is better that you call them rather than they call you!
Check carefully when yours are expiring… Umm Don’t miss that date, perhaps put it in the diary!! Its best to have a fool proof system.