if a stock is halted, no delivery is possible. CBOE will NOT assign you. your option expires worthless. that is one of the risk of buying put options on a stock that might run into a halted trade. lots of client are asking this question for the american home mortgage.
well.....i have actually encountered this problem with American Home Mortgage...anybody that bought the put with strike price greater then 1 is in the money.
however, becasue the stock is not deliverable, who is going to pay you? we have tons of clients calling in about this one. maybe we're giving them the wrong answer.
On pg. 61 of the Characteristics and Risks of Standardized Options it states, it states that "the holders of the options will be locked into their positions until either the exercise restriction or trading halt has been lifted."
A temporary suspension in the trading of a particular security on one or more exchanges, usually in anticipation of a news announcement or to correct an order imbalance. A trading halt may also be imposed for purely regulatory reasons. During a trading halt, open orders may be canceled and options may be exercised.
...........
"The holder of a put could lose his entire investment in the option if the prohibition remained in effect until the puts expiration and the holder was unable either to acquire the underlying interest or sell his put in the market"
I don't know, you would think that the OCC would just offset all the sells and the buys of the options and clear everyone out.
FrankArabia Wrote:
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> if a stock is halted, no delivery is possible.
> CBOE will NOT assign you. your option expires
> worthless. that is one of the risk of buying put
> options on a stock that might run into a halted
> trade. lots of client are asking this question for
> the american home mortgage.
That's silly.
Mark's first point here is the one that matters - in a trading halt of the underlying security you are still able to exercise the options. This would create a short position in your account that would be there when the trading halt is done. Obviously, if you have an OTM put that expires tomorrow and then trading halts in the stock for some bad reason, you've got a serious decision to make.
That second thing that Mark puts is about OCC exercise restrictions that might happen in some pretty unusual circumstances.
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