Sage-Tips

What happens when options expire ITM?

When a put option is in the money at the expiration date, the investor will be short the stock after it is automatically exercised. If the investor owns the stock and the option, the investor’s stock will instead be sold at the agreed strike price.

Can options go ITM after hours?

For the most part, options that are in-the-money (ITM) will be automatically exercised at the closing market price. However, it is not mandatory, and investors can contact their clearing firm with an exception that can occur during after-hours trading. For options holders who hold contracts at-the-money (ATM)

Why would someone sell an in the money call?

The call option is in the money because the call option buyer has the right to buy the stock below its current trading price. When an option gives the buyer the right to buy the underlying security below the current market price, then that right has intrinsic value. “In the money” describes the moneyness of an option.

When is a put option considered in the money (ITM)?

A put option is considered in the money (ITM) when the current market price of the underlying security is below the strike price of the put option. The put option is in the money because the put option holder has the right to sell the underlying security above its current market price.

Is the stock market rational or efficient?

Assuming the stock market participants consist of rational investors, it’s fair to assume the market should be rational or efficient too. Market efficiency is defined as the true value of a certain stock reflected in its market price at any point in time. In a previous post we looked at the following investment choice example:

Should you exercise out of the money stock options?

In this case, there is no financial reason to exercise the option because you can buy the shares cheaper on the open market. If an option is out-of-the-money on the expiration date, the option has no value and basically expires worthless and ceases to exist.

What happens when you sell in the money options?

You can either sell the option to lock in the value or exercise the option to buy the shares. If you hold in-the-money options until expiration, your broker will automatically exercise them for you, and you will own the stock shares Monday morning – market options always expire on a Friday.