Options settlement is handled by the Options Clearing Corporation (OCC). They keep track of the open interest in all equity options and match the long to short interest on expiration day. By default, the OCC initiates exercise of all options that expire .75 or more in the money. If you are long an option that expires worthless, or less than .75 in the money, you can do nothing. The option simply expires and you have lost whatever premium you paid for the option. If you are long and the option is .75 or more in the money, you should see an exercise report from your broker the Monday following expiration. If you owned a call, you should find a long stock position in your account. If you owned a put, you should find a short stock position. If you are short a put or call that expires .75 in the money, you should expect to be assigned the obligation to match someone's long exercise. If you are short a call, you should expect to lose a long stock position, or open a short position because someone is buying your stock at the strike price. If you are short a put, you should expect to obtain or increase a long stock position because someone is selling you their stock at the strike price.
Any option owner can decline to exercise an option that is in the money by notifying their broker. I don't know why anyone would get themselves in this, but it could happen. Any option owner can instruct their broker to exercise an option even if it is out of the money. It is also unlikely anyone would do this. For options that expire in the money by less than .75, the owner may choose to exercise, but it is not done by default. Generally, you can expect some number of options in that range to be exercised. If you are short one of those options, you may be assigned based on an allocation disseminated to the brokers by the OCC. Your broker, in turn, distributes those assignments among the short interest held by their clients. The process is supposed to be random.
You should confirm with your broker their policy of automatic exercise of your long options that are .75 in the money. I have heard of cases where brokers have claimed that a client is not entitled to exercise unless the client notifies them. If they make that claim they are basically stealing your right to exercise, and your profit. You should also be familiar with your broker's policy regarding elective exercise; how and when do you have to notify them that you want to exercise if it is not done automatically?
Those COHU puts and calls at the 17.50 strike price expired worthless on Friday. It is possible, though unlikely, that some small percent of the owners of those options elected to exercise them anyway. They might do that if they had some reason to believe the stock would gap open this morning one way or the other. There is then a small chance that anyone short those options could be assigned to buy or deliver shares of stock. |
