Personal Finance & Money Asked by user15587922 on August 14, 2021
I am new to option trading. I would like to know:
For US options, what is the time frame for the underlying stock to be delivered once the call/put is exercised?
If sell a call and I am unable to deliver the stock when exercised, what will happen?
If I sell a bearish call spread with a short call at strike price $A and a long call at the higher strike price $B then if the stock price rise above $B, what happens if the stock rises above $B and the call at $A is exercised and I exercise the call to buy the stock at $B?
How do I deliver the stock I obtained at $B to the holder of the call at $A?
Exercise notices are submitted to the OCC and in the evening. They utilize a "wheel" strategy to determine who is assigned and you will receive notice the next morning before trading resumes. When I exercise, my broker does immediately adds/removes equity positions to my account but technically, it's still overnight for actual option settlement.
If you sell a call short and you are unable to deliver the stock, you will go short the stock. If you lack the margin to carry the position, your broker will close it and you will responsible for any loss. Robinhood has a policy of closing short options at 3:30 PM on expiration day. Read this to see how this can end poorly.
If both legs of your bear call spread are exercised, you'll buy 100 shares and sell 100 shares, resulting in no equity position in your account. Your broker will take care of acquiring and delivering the stock to the appropriate counter parties.
Correct answer by Bob Baerker on August 14, 2021
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