IF I HAVE A OUT OF THE MONEY OPTION WILL IT BE AUTOMATICALLY EXERCISED

Question

i am thinking that the answer is no because i read up and it said any contract that is .05 in the money then it will be exercised automatically so i am here seeing what you guys have to say. because i have 10 contracts and its bottomed out and there are no bids for it and i dont wana get stuck buying 1000 shares unless i have to

Thanks

Answer 1

The answer is no.

The way to reason this is as follows. Just ask yourself: is it cheaper for a buyer of the shares to acquire those shares via your option or via the open market\?.

In general, out of the money calls are not exercised. It is in the money calls that are exercised.

Answer 2

The rule that the option has to be at least $0.05 in the money to be automatically exercised has been modified. Options (on an American exchange) will now be automatically exercised if they are at least $0.01 in the money at expiration. As in the past, the holder of an option can decide that he does not want the option exercised automatically. He needs to have his broker inform the Options Clearing Corporation (OCC) of that decision.

An option that is out of the money will never be exercised unless the holder gives specific instructions to exercise it.

Answer 3

No. It has to be in the money to be automatically exercised.