Stock Option Trading - New Options Clearing Corporation Rule

       By: Suzanne Bender
Posted: 2010-02-14 00:54:30
I recently heard a story about a person who woke up to find that they had bought an amount of stock for $15,000.00 that they had not ordered. Are you wondering how they bought a stock without knowing and without placing an order? The answer is the Automatic Exercise Threshold for equity options.In October of 2006, the OCC (Options Clearing Corporation) put a change into affect. They said that while the current threshold was at $0.25, it would be changed to $0.05 for options that were expiring and the OCC would automatically exercise this rule.While this may not seem like a lot, in options trading it can be. Options equal contracts that give people the option to buy and/or sale stocks at a price that had already been decided upon. It could also be done on or even before the actual predetermined date of expiration. This is not a right that has to be acted upon but one that the buyer can choose to use.In order for a buyer to use this right, they have to have enough to pay for the stock. Each contract is equal to 100 shares. If you do not have the money, there are some very serious consequences. The important thing to remember is that the OCC can decide that they should act on the contracts in your interest.The options for options traders:There are steps a buyer can take in order to counteract the OCC's automatic options. The buyer should always keep an eye on the price of a stock they do not want. Since options trading is often seen as an aggressive approach to trading, anyone who is an options trader and is looking for a passive approach should call their broker and find out the other options that are available in the market.Looking for more option trading strategies and tips? Visit us at Global Mutual Funds - Australia's pre-eminent provider of global investment product alternatives and solutions. Find out what you need to know about equities, options trading, and how exchange traded funds can help build your long term wealth.
Trackback url: