Should the written option for Jan 09 be closed or not ?

< <>>

I am assuming this question deals with the option from question 1. To clarify we are talking about 3:30 PM on the Thursday before expiration, so there is just over one trading session before expiration on Saturday.

You mentioned the option was part of a spread, but you did not say what the other leg(s) of the spread are. That could make a big difference in determining the answer.

If it is a vertical spread it is unlikely I would close one leg without simultaneously closing the other leg(s) of the spread. Since PTRAY is a short leg closing it would increase my theta exposure unless the other leg(s) are so far away from the money that they have little extrinsic value left.

In my opinion it is really a judgement call. One question I like to ask myself is “If I did not already have this position, would I want to open it at the current price?”. If the answer to that question is “no” then I would recommend closing the position.

< <<1. PTR is trading 79.3 as of 3.30 PM. Day range 81.47 to 76.99
PTRAY C Jan09 - Strike 85
IV=66.9
Del=39.4
The=-74.39

PTRAY written as part of a spread
What would be the optimal equity price (or any Greeks) at which the position should be closed ?>>>

I cannot give you a numeric answer to that question. In part it depends upon how you planned to manage the spread when you opened it. If you wanted to be delta neutral, I would ask if closing the leg brought the overall delta of the spread closer to zero.

If I was trying to profit from a change in implied volatility, I would be more inclined to close a short leg if I thought implied volatility was too high and I would certainly not want to close it if I thought implied volatility was too low.

WARNING: I don’t know your source for the greeks, but unless they update during the day based on time of day you are likely to get some pretty unrealistic numbers in the last couple of trading days before expiration.

< <<2. After the written option in a spread goes in the money, do you have till 3.59 PM that day to close it out to eliminate the risk of getting assigned?>>>

Correct. Although technically an out of the money option can be assigned, it is so rare that I would not worry about it.

< <<3. When people/ websites say 80 or 85 % of the option expire worthless do the mean - 80 % of the out of money options?>>>

No. That figure comes from the fact that about that percentage of options are out of the money at expiration and are allowed to expire. The rest of the options are in the money and exercised at expiration.

What makes that figure really misleading is that most options contracts are closed prior to expiration, either by closing trades or by early exercise.

< <<4. Do 100 % of the in the money get exercised?>>>

If you mean at expiration, excluding a few very rare exceptions, yes.

If you mean prior to expiration, no. Put options are usually only exercised early if they are so far in the money that they have no extrinsic value left. Call options are usually only exercised early if the stock is about to go ex-dividend, and the dividend amount is greater than the extrinsic value of the option.

< <<5. What popular option strategies use ' exercise’ activity as a part of the strategy?>>>

Protective puts, aka married puts, is the best example I can think of off-hand.

< <<6. Example :
Hypothetically NUE $41.3 on 3rd Friday of the month at 3:30 PM

37.50 NLVAU.X
40.00 NUEAH.X
--------------------------------------...
42.50 NUEAV.X
45.00 NUEAI.X
47.50 NUEAW.X
50.00 NUEAJ.X
55.00 NUEAK.X

A. Which among the following OTM have chances of getting assigned?>>>

In theory, all of them.
In practive, none of them has a significant chance of being assigned as long as they remain OTM..

< <>>In that case -just closing the position between 3:30 and 3:59 would be the best bet. Is that correct?>>>

Yes. Since any change in the stock price that caused any of the other OTM options to go ITM would also cause the 42.5 strike to go ITM, it has the best chance.

< << In that case -just closing the position between 3:30 and 3:59 would be the best bet. Is that correct?>>>

This goes back to the first question. It is a judgement call if it is worth closing the option.

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A couple of comments:

Most exchange traded options under $3.00 have minimum bid/ask increments of $0.05. So, if you want to just submit an order to close the option you have to bid at least $0.05 per share unless you are submitting a spread order. By 3:30 PM on the Friday before expiration it is likely the option will only be worth $0.01 or less, so by waiting that long you can be overpaying. Unless you are trading options that have $0.01 bid/ask increments I suggest you close positions earlier.

While an unexpected early assignment is rare, the