From Trader Workstation, go to the Trade menu and select Option Exercise.

The Option Exercise window will appear and any long options you are holding will populate under the Long Positions column header. To lapse one of them, left-click on the light blue “Select” link under the Exercise Option column header for that particular option.

Select “Lapse” from the drop down menu.

Review the request, and click the blue “ T” Transmit button to submit the lapse request.

The Option Exercise Confirmation window will appear and will show how much the option is in-the-money. If the option is out-of-the-money, a warning message will appear. To submit the Lapse request, click the Override and Transmit button.

Your Lapse request will now show as an order line on your Trader Workstation until the clearinghouse processes the request.

Unless the lapse request is final it is still considered a position in the credit system and subject to the expiration exposure calculations. The Orders page of Global Configuration provides a selection box where you can specify that an option exercise request be final, and therefore cannot be canceled or editable until the cutoff time (default), which varies by clearing house. To specify this parameter, from the Mosaic File menu or Classic Edit menu, select Global Configuration and go to Orders followed by Settings from the configuration tree on the left side. Make your selection using the “Option exercise requests are” drop down menu. Please note that some contracts will not follow this rule and will remain revocable up until the clearing house deadline.

In the event that an option exercise cannot be submitted via the TWS, an option exercise request with all pertinent details (including option symbol, account number and exact quantity), should be created in a ticket via the Account Management window. In the Account Management window, click on "Inquiry/Problem Ticket". The ticket should include the words "Option Exercise Request" in the subject line. Please provide a contact number and clearly state in your ticket why the TWS Option Exercise window was not available for use.

Option Lapse Requests (whether received through the TWS Option Exercise window or by a ticket sent via Account Management/Message Center) must be submitted as follows:

Note: "Contrary intentions" are handled on a best efforts basis.

INTRODUCTION

Exercer une option d'achat avant expiration ne présente, en règle générale, pas d'intérêt d'un point de vue financier. En effet :

• cela conduit à une confiscation de la valeur temps de l'option pour la période restante ;
• requiert une mobilisation plus importante de capital pour le paiement ou le financement de la livraison de l'action ; et
• peut exposer le détenteur de l'option à un risque accru de perte sur l'action comparé à la prime de l'option.

Toutefois, pour les détenteurs de compte ayant la capacité de faire face à une exigence de capital ou d'emprunt plus importante ou à un risque accru de baisse du marché, il peut être intéressant de demander l'exercice anticipé d'une option d'achat américaine afin de bénéficier d'une distribution de dividende imminente.

RAPPEL

Le détenteur d'une option d'achat ne reçoit pas de dividende sur l'action sous-jacente car ce dividende revient au détenteur de l'action au moment de la date d'enregistrement (record Date). À la date  ex-dividende, le cours de l'action diminue normalement d'un montant égal à celui du dividende. Bien que la théorie sur le prix des options suggère que le prix d'un call reflétera la valeur réduite des dividendes qui doivent être payés durant la période, ce prix peut également baisser à la date ex-dividende.  Les conditions rendant ce scénario plausible et un exercice anticipé favorable sont les suivantes :

1. L'option est "deep-in-the-money" et a un Delta de 100 ;

2. L'option n'a pas ou peu de valeur temps ;

3. Le dividende est relativement élevé et la date ex-dividende précède la date d'expiration de l'option.

EXEMPLES

Pour illustrer l'impact de ces conditions sur une décision d'exercice anticipé, prenons l'exemple d'un compte avec une position longue en numéraire de 9,000 USD et une position longue d'options d'achat de l'action hypothétique  “ABC”  dont le prix d'exercice est 90.00 USD, avec une expiration dans 10 jours. Le dividende d'ABC, qui s'échange actuellement à 100.00 USD, est de 2.00 USD par action, avec une date ex-dividende le lendemain. Nous supposerons également que le prix de l'option et le cours de l'action se comportent de manière similaire et baissent du montant du dividende à la date ex-dividende.

Nous observerons les effets de la décision d'exercice visant à maintenir une position Delta de 100 actions et à maximiser la position. Deux prix d'options seront retenus, dans le premier cas, l'option est vendue à parité, dans le second, au dessus de la parité.

SCÉNARIO 1: Prix d'option à parité - 10.00 USD

Dans le cas d'une option s'échangeant à parité, l'exercice anticipé servira à maintenir la position Delta et à éviter une perte de valeur sur une action longue lorsque l'action trade ex-dividende pour préserver la valeur. Dans ce cas, les liquidités sont entièrement dédiées à l'achat de l'action au prix d'exercice, la prime de l'option est confisquée et l'action (nette de dividende) et le dividende à recevoir sont crédités sur le compte. Si vous souhaitez arriver au même résultat en vendant l'option avant la date ex-dividende et en achetant l'action, n'oubliez pas d'inclure les commissions/spreads dans vos calculs :

SCÉNARIO 2: Prix d'option au-dessus de la parité - 11.00 USD

Dans le cas d'une option s'échangeant au dessus de la parité, un exercice anticipé afin de percevoir le dividende peut être avantageux. Dans un tel cas de figure, un exercice anticipé engendrerait une perte de 100 USD en valeur temps sur l'option, tandis qu'une vente de l'option et un achat de l'action, peut être, après commissions, moins avantageux que de ne rien faire.  Dans ce cas, la meilleure solution est de ne rien faire.

REMARQUE : Les titulaires de compte détenant une position longue d'options d'achat dans le cadre d'un spread doivent se montrer particulièrement vigilants quant au risque lié au non-exercice de la jambe longue compte tenu de la probabilité d'un exercice de la jambe short. Veuillez noter que l'assignation d'une option d'achat short entraîne une position short d'actions et les détenteurs de positions short d'actions à la date d'enregistrement du dividende ont l'obligation de payer un dividende au prêteur des actions. Par ailleurs, le cycle de traitement de la chambre de compensation ne permet pas la soumission de notifications d'exercice en réponse à une assignation.

Prenons l'exemple d'un spread créditeur d'options d'achat (bear) sur le SPDR S&P 500 ETF Trust (SPY) comprenant 100 contrats short avec un prix d'exercice de 146 USD à mars 2013, et 100 contrats long au prix d'exercice de 147 USD à mars 2013. Le 14 mars 2013, SPY Trust annonce une distribution de dividende de 0.69372 USD par action, payable le 30 avril 2013 aux actionnaires à une date d'enregistrement au 19 mars 2013. Compte tenu des 3 jours ouvrables de règlement pour les actions U.S., il aurait fallu acheter l'action ou exercer l'option d'achat au 14 mars 2013 au plus tard, afin de recevoir un dividende, étant donné que l'action commençait à trader ex-dividende le lendemain.

Le 14 mars 2013, alors qu'il restait un jour de trading avant expiration, les deux options s'échangeaient à parité, ce qui implique un risque maximum de 100 USD par contrat, soit 10,000 USD sur la position de 100 contrats. Cependant, ne pas exercer le contrat long afin de percevoir un dividende et de se protéger contre l'assignation vraisemblable des contrats short par d'autres intervenants en quête d'un dividende, a engendré un risque supplémentaire de 67.372 USD par contrat, soit 6,737.20 USD sur la position restante lorsque toutes les positions d'achat seront assignées. Comme indiqué dans le tableau ci-dessous, si la jambe de l'option short n'avait pas été assignée, le risque maximum au prix de règlement final au 15 mars 2013, serait resté à 100 USD par contrat.

Veuillez noter que si votre compte est soumis à une retenue fiscale dans le cadre de la règle du trésor américain 871(m), il peut être avantageux pour vous de fermer une position d'options longue avant la date ex-dividende et de la rouvrir après.

Pour plus d'informations sur la manière de procéder à un exercice anticipé, veuillez consulter le site Interactive Brokers.

L'article ci-dessus vous est fourni uniquement à titre d'information et ne constitue en rien une recommandation, un conseil de trading ni ne garantit que l'exercice anticipé d'option sera adéquat ou une opération réussie pour tous les clients ou toutes les transactions. Les détenteurs de compte doivent consulter un conseiller fiscal afin de s'informer de l'incidence fiscale, le cas échéant, d'un exercice anticipé et doivent être avertis des risques potentiels que présente la substitution d'une position longue d'option à une position longue d'actions.

INTRODUCTION

Exercising an equity call option prior to expiration ordinarily provides no economic benefit as:

• It results in a forfeiture of any remaining option time value;
• Requires a greater commitment of capital for the payment or financing of the stock delivery; and
• May expose the option holder to greater risk of loss on the stock relative to the option premium.

Nonetheless, for account holders who have the capacity to meet an increased capital or borrowing requirement and potentially greater downside market risk, it can be economically beneficial to request early exercise of an American Style call option in order to capture an upcoming dividend.

BACKGROUND

As background, the owner of a call option is not entitled to receive a dividend on the underlying stock as this dividend only accrues to the holders of stock as of its dividend Record Date. All other things being equal, the price of the stock should decline by an amount equal to the dividend on the Ex-Dividend date. While option pricing theory suggests that the call price will reflect the discounted value of expected dividends paid throughout its duration, it may decline as well on the Ex-Dividend date.  The conditions which make this scenario most likely and the early exercise decision favorable are as follows:

1. The option is deep-in-the-money and has a delta of 100;

2. The option has little or no time value;

3. The dividend is relatively high and its Ex-Date precedes the option expiration date. 

EXAMPLES

To illustrate the impact of these conditions upon the early exercise decision, consider an account maintaining a long cash balance of $9,000 and a long call position in hypothetical stock “ABC” having a strike price of $90.00 and time to expiration of 10 days. ABC, currently trading at $100.00, has declared a dividend of $2.00 per share with tomorrow being the Ex-Dividend date. Also assume that the option price and stock price behave similarly and decline by the dividend amount on the Ex-Date.

Here, we will review the exercise decision with the intent of maintaining the 100 share delta position and maximizing total equity using two option price assumptions, one in which the option is selling at parity and another above parity.

SCENARIO 1: Option Price At Parity - $10.00
In the case of an option trading at parity, early exercise will serve to maintain the position delta and avoid the loss of value in long option when the stock trades ex-dividend, to preserve equity. Here the cash proceeds are applied in their entirety to buy the stock at the strike, the option premium is forfeited and the stock (net of dividend) and dividend receivable are credited to the account.  If you aim for the same end result by selling the option prior to the Ex-Dividend date and purchasing the stock, remember to factor in commissions/spreads:

SCENARIO 2: Option Price Above Parity - $11.00
In the case of an option trading above parity, early exercise to capture the dividend may not be economically beneficial. In this scenario, early exercise would result in a loss of $100 in option time value, while selling the option and buying the stock, after commissions, may be less beneficial than taking no action. In this scenario, the preferable action would be No Action.

NOTE:

Options have two components that make up their total premium value - intrinsic value and time value. The intrinsic value is the amount by which the option is in-the-money, while the time value represents the possibility that the option could become even more profitable before expiration as the underlying asset price fluctuates while providing protection against adverse moves.

Many options are American-style, which means they can be exercised early, ahead of their expiration date. Early exercise of an option eliminates the remaining time value component from the option's premium, since the option holder loses protection against unfavorable movements in the underlying asset’s price.

This makes early exercise suboptimal in most situations, as the option holder is willingly forfeiting a portion of the option's value.

There are a few specific circumstances where early exercise could make sense, such as:

• For call options on a stock that will pay dividends soon, where the dividend amount exceeds the remaining time value (and only if the exercise will settle on or prior to the record date for the dividend).
• For deep in-the-money options where the time value is negligible compared to the intrinsic value, and the option is expected to drop in value due to interest rate effects (PUTS), or expected stock loan benefits (CALLS).

The first case, exercising an in the money call immediately ahead of a dividend payment, is the most common economically-sensible early exercise. In most cases, it is advisable to hold or sell the option instead of exercising it early, in order to capture the remaining time value. An option should only be exercised early after carefully considering all factors and determining that the benefits of early exercise outweigh the time value being surrendered.

Account holders holding a long call position as part of a spread should pay particular attention to the risks of not exercising the long leg given the likelihood of being assigned on the short leg.  Note that the assignment of a short call results in a short stock position and holders of short stock positions as of a dividend Record Date are obligated to pay the dividend to the lender of the shares. In addition, the clearinghouse processing cycle for exercise notices does not accommodate submission of exercise notices in response to assignment.

As example, consider a credit call (bear) spread on the SPDR S&P 500 ETF Trust (SPY) consisting of 100 short contracts in the March '13 $146 strike and 100 long contracts in the March '13 $147 strike.  On 3/14/13, with the SPY Trust declared a dividend of $0.69372 per share, payable 4/30/13 to shareholders of record as of 3/19/13. Given the 3 business day settlement time frame for U.S. stocks, one would have had to buy the stock or exercise the call no later than 3/14/13 in order receive the dividend, as the next day the stock began trading Ex-Dividend. 

On 3/14/13, with one trading day left prior to expiration, the two option contracts traded at parity, suggesting maximum risk of $100 per contract or $10,000 on the 100 contract position. However, the failure to exercise the long contract in order to capture the dividend and protect against the likely assignment on the short contracts by others seeking the dividend created an additional risk of $67.372 per contract or $6,737.20 on the position representing the dividend obligation were all short calls assigned.  As reflected on the table below, had the short option leg not been assigned, the maximum risk when the final contract settlement prices were determined on 3/15/13 would have remained at $100 per contract.

Please note that if your account is subject to tax withholding requirements of the US Treasure rule 871(m), it may be beneficial to close a long option position before the ex-dividend date and re-open the position after ex-dividend.

For information regarding how to submit an early exercise notice please click here. 

The above article is provided for information purposes only as is not intended as a recommendation, trading advice nor does it constitute a conclusion that early exercise will be successful or appropriate for all customers or trades. Account holders should consult with a tax specialist to determine what, if any, tax consequences may result from early exercise and should pay particular attention to the potential risks of substituting a long option position with a long stock position.

Under Section 31 of the Securities Exchange Act of 1934, U.S. national securities exchanges are obligated to pay transaction fees to the SEC based on the volume of securities that are sold on their markets. Exchange rules require their broker-dealer members to pay a share of these fees who, in turn, pass the responsibility of paying the fees to their customers.

This fee is intended to allow the SEC to recover costs associated with its supervision and regulation of the U.S. securities markets and securities professionals. It applies to stocks, options and single stock futures (on a round turn basis); however, IB does not pass on the fee in the case of single stock futures trades.  Note that this fee is assessed only to the sale side of security transactions, thereby applying to the grantor of an option (fee based upon the option premium received at time of sale) and the exerciser of a put or call assignee (fee based upon option strike price).

For the fiscal year 2016 the fee was assessed at a rate of $0.0000218 per $1.00 of sales proceeds, however, the rate is subject to annual and,in some cases, mid-year adjustments should realized transaction volume generate fees sufficiently below or in excess of targeted funding levels.¹

Examples of the transactions impacted by this fee and sample calculations are outlined in the table below.

¹Information regarding current Section 31 fees may be found on the SEC's Frequently Requested Documents page located at: http://www.sec.gov/divisions/marketreg/mrfreqreq.shtml#feerate