Auto exercise 100 strike options on Nymex? $100 WTI printed on the floor

[OptionsDave]

Hi guys,

Just wondered what the situation is with auto exercising of options on Nymex? Given that today a nymex local bid $100 on the front month WTI future when it was trading 99.60 on the screen, would that trigger any auto exercising of options?

Could someone please explain what will have happened in this circumstance, and with the auto exercising of options in general when the relevant strike price prints? Does it just take one print, or does the market have to be trading there for a certain period of time etc etc.

Cheers
Dave

 

[OptionsDave]

Anybody?

 

[gedward3]

Id be interested to know this as well.

I believe US style options can be exercised at any time whereas UK options can only be exercised upon expiry.

Maybe the trader who hit the $100 a barrel in the futures market didnt really take a loss as he may have purchased a put option at the $100 strike and he may have made more than he supposedly lost. The writer of that option maybe licking his wounds right now.

 

[OptionsDave]

Thanks for the input gedward3.

Correct. US style options can be exercised at any time whereas 'European' style options can only be exercised on expiry.

As for the buying of a put option.... in my mind it wouldn't make much sense. If he has bought it previously then it would be ITM anyway and would have already been auto exercised if set up to do so? And he wouldn't have been able to buy the put when it was OTM (and hold it waiting for the market to drop so it would auto exercise) as the market was high ticked at $100 for 1 lot and dropped straight back down again therefore the $100 put has never been OTM?

Also, more fundamentally I don't see why he would want to or benefit from auto exercising, unless he wanted a position in the underlying future. Any profit made from the drop in the underlying would be included in the rising premium of the put and he would make a much simpler profit by just closing out the options position rather than buying back the resulting short futures position at lower?

Not saying you're wrong, just trying to confirm my understanding. Any input from other is appreciated.

I believe member firms can send a suppression notice to the exchange to, in effect, 'turn off' auto exercising of positions? I just would be interested to hear the real life specifics of what happens on Nymex.

I guess the question(s) remain....

1) What happens to options on Nymex? Are they auto exercise by default, and will exercise have been triggered by this $100 print on the floor?

2)Why did he high tick at $100, other than to tell his grand kids he was the first to trade at that price?

3)There has been a lot of open interest at $100 in the options over the last month (if my memory serves me correctly) - why so much around this 'magic number'? Perhaps the strategy might have been buying cheap OTM $100 calls and by breaking the $100 mark the resulting media frenzy of "$100 a barrel" oil would ramp up the market significantly and therefore result in a tidy profit. It just didn't work this time as no one followed suit in purchasing at that price and so the barrier was never broken with any real conviction??

Thoughts on these three questions anyone????

Dave