INTRODUCTION

Option exercise limits, along with position limits (See KB1252), have been in place since the inception of standardized trading of U.S. securities options. Their purpose is to prevent manipulative actions in underlying securities (e.g., corners or squeezes) as well as disruptions in option markets where illiquidity in a given option class exists.  These limits serve to prohibit an account, along with its related accounts, from cumulatively exercising within any five consecutive business day period, a number of options contracts in excess of the defined limit for a given equity options class (i.e., option contracts associated with a particular underlying security). This includes both early exercises and expiration exercises.

OVERVIEW

U.S. securities option exercise limits are established by FINRA and the U.S. options exchanges.  The exercise limits are generally the same as position limits and they can vary by option class as they take into consideration factors such as the number of shares outstanding and trading volume of the underlying security. Limits are also subject to adjustment and therefore can vary over time.  The Options Clearing Corporation (OCC), the central clearinghouse for U.S. exchange traded securities options, publishes a daily file with these limits on its public website. The link is as follows: http://www.optionsclearing.com/webapps/position-limits.  FINRA Rule 2360(b)(4) addresses exercise limits and can be found via the following website link: http://finra.complinet.com/en/display/display.html?rbid=2403&record_id=16126&element_id=6306&highlight=2360#r16126).

Note that exercise limits are applied based upon the the side of the market represented by the option position. Accordingly, all exercises of call options over the past five business days are aggregated for purposes of determining the limit for the purposes of purchasing the underlying security.  Similarly, a separate computation whereby all put exercises over the past five business days are aggregated is required for purposes of determining sales of the underlying.

IMPORTANT INFORMATION

It's important to note that while exercise limits may be set at levels identical to position limits, it is possible for an account holder to reach an exercise limit without violating positions limits for a given option class.  This is because exercise limits are cumulative and one could conceivably purchase options up to the position limit, exercise those options and purchase additional options which, if allowed to be exercised within the five business day window, would exceed the limit.

Account holders are responsible for monitoring their cumulative options exercises as well as the exercise limit quantities to ensure compliance.  In addition, IB reserves the right to prohibit the exercise of any options, regardless of their intrinsic value or remaining maturity, if the effect of that exercise would be to violate the exercise limit rule.

简介

到期前行使股票看涨期权通常不会带来收益，因为：

• 这会导致剩余期权时间价值的丢失；
• 需要更大的资金投入以支付股票交割；并且
• 会给期权持有人带来更大的损失风险。

尽管如此，对于有能力满足更大资金或借款要求并能承受更大下行市场风险的账户持有人来说，提前行权行使美式看涨期权可获取即将分配的股息。

背景

看涨期权持有者无权获取底层股票的股息，因为该股息属于股息登记日前的股票持有人所有。 其他条件相同，股价应该下降，降幅与除息日的股息保持一致。期权定价理论提出看涨期权价格將反映预期股息的折扣价格，看涨期权价格也可能在除息日下跌。最可能促成该情境与提前行权决定的条件如下：

1. 期权为深度价内期权且delta值为100；

2. 期权几乎没有时间价值；

3. 股息相对较高且除息日在期权到期日之前。

举例

为阐述这些条件对提前行权决定的影响，假设账户的多头现金余额为$9,000美元，且持有行使价为$90.00美元的ABC多头看涨头寸，10天后到期。 ABC当前的成交价为$100.00美元，每股股息为$2.00美元，明天是除息日。再假设期权价格与股票价格动向相同，且在除息日下跌的幅度均为股息金额。

这里，我们将检查行权决定，目的是维持100股delta头寸并使用两种期权价格假设（假设一个为平价，一个高于平价）最大化总资产。

情境1：期权价格为平价 - $10.00美元
如果期权以平价交易，提前行权可维持delta头寸并可避免股票除息交易时多头期权价值遭受损失，从而保护资产。在这里现金收入被全数用于以行使价购买股票，期权权利金就此丧失并且股票（扣除股息）与应收股息会记入账户。如果您想通过在除息日前卖出期权并买入股票来达到同样的效果，请记得考虑佣金/价差：

情境2：期权价格高于平价 - $11.00美元
如果期权以高于平价的价格交易，提前行权获取股息则可能并不会带来收益。在此情景中，提前行权可能会导致期权时间价值损失$100美元，而卖出期权买入股票在扣除佣金之后收益情况也可能不如不采取行动。在这里，可取的行动为无行动。

请注意：考虑到空头期权边被行权的可能性，持有作为价差组成部分之多头看涨头寸的账户持有人应格外注意不行使多头期权边的风险。请注意，空头看涨期权的被行权会导致空头股票头寸，且在股息登记日前持有空头股票头寸的持有人有义务向股票的借出者支付股息。此外，清算所行权通知处理周期不支持提交响应被行权的行权通知。

例如，假设SPDR S&P 500 ETF Trust (SPY)的信用看涨（熊市）价差包括100张13年3月到期行使价为$146美元的空头合约，以及100张13年3月到期行使价为$147美元的多头合约。在13年3月14日，SPY Trust宣布每股股息为$0.69372美元，并且会在13年4月30日向13年3月19日前登记的股东支付。因为美国股票的结算周期为3个工作日，想要获取股息，交易者需要在13年1月14日之前买入股票或行使看涨期权，因为该日期一过，股票便开始除息交易。

13年3月14日，距离期权到期只剩一个交易日，平价成交的两张期权合约每张合约的最大风险为$100美元，100张合约则为$10,000美元。但是，未能行使多头合约以获取股息以及未能避免空头合约被其他想要获取股息的交易者行权会使每张合约产生额外$67.372美元的风险，如果所有空头看涨合约都被行权，则所有头寸总风险为$6,737.20美元。如下表所示，如果空头期权边没有被行权，则13年3月15日确定最终的合约结算价格时，最大风险仍为每张合约$100美元。

请注意，如果您的账户符合美国871(m)预扣税要求，则除息日前平仓头多期权头寸并在除息日后重新建仓可能会带来收益。

有关如何提交提前行权通知的信息，请查看网站。

上述内容仅作信息参考，不构成任何推荐、交易建议，也不代表提前行权会成功或适合所有客户或交易。账户持有人应咨询税务专家以确定提前行权可能带来的税务影响，并应格外注意以多头股票头寸替换多头期权头寸的潜在风险。

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