broker's option assignment policy

[dr_trick]

hi all,

sorry to throw another newbie question into the ring.

i want to know if there is a standard policy for handling assignments with the different brokers.

let me elaborate, when i get assigned my broker delivers the shares and places a short position in my account - which i have to close before 1300 eastern.

i would have assumed that delivering the shares and debiting my account with the net pnl of the trade would be a simpler exercise.

given that their commissions are a bit on the high side, is the broker doing this to extract extra revenue or is this standard practice in the industry.

any help would be much appreciated.

cheers

 

[dr_trick]

sorry... please ignore.

i've just thought about it again. a broker entering the market on one's behalf to close the assignment can leave them open to litigation.

cheers

 

[robbmickey]

Most broker's policies is to exercise any option that is .05 in the money at options expiration to protect their interest in the shares. Before this rule, many new option traders would leave positions that were $10 in the money over expiration to find the broker did not exercise anything and they lost their profits.