Exercising Caution with Options: Time Limits Apply
Options are sold in units of 100 shares—never in odd lots. Nevertheless, orders for 500 or 1,000-share options are common, and orders for 10,000-share options occasionally come in to the market.
However, to buy options on such a quantity of shares is a job which the option-dealer must handle with care. To go to a seller of options and let him know that you have an order of that size would immediately arouse his suspicions and he would be reluctant to sell any options. So, in handling such an order, the option-dealer must try to fill his order 500 or 1,000 shares at a time, without disclosing the size of the full order.
The same technique would probably be used on the floor of the stock exchange by a broker who had a large quantity of a stock to buy or sell. To disclose the size of his order would enable other brokers to “take the market away from him,” and he would then be able to complete his order only by bidding the stock up in the case of a “buy” order or marking it down considerably in the case of a “sell” order.
Most option business is done in stocks listed on the New York Stock Exchange, some in stocks listed on the American Stock Exchange, and a small part in securities traded in the “over-the-counter” market. While options cannot always be negotiated on every stock on the exchange, the number of stocks on which options are written includes most of the leading stocks and also enough additional issues to satisfy a large demand.
All option contracts expire at 3:15 P.M. (New York time) on the date stated in the contract, and they cannot be exercised by telephone but must be presented to the cashier of the stock-exchange firm that endorses the contract before the expiration time of 3:15 P.M. (New York time).
A number of stock-exchange firms who have bought contracts for their customers, to avoid loss, insist on having instructions for the exercise of options well in advance of expiration time on the day that the option expires. In order to eliminate the chance of loss in late presentation of an option and to avoid delay when a contract is to be exercised, contracts should never be kept outside of New York City but should remain with your stockbroker or your option-dealer for safekeeping.
The maker of an option contract will not accept it if it is presented after it expires. When he sells the option, he agrees to live up to the terms of the contract but not beyond them. If the maker of a contract agreed to accept one presented two minutes after it had expired, he might be asked to accept one 20 minutes or 30 minutes after it had expired, or even on the next day.
He is not willing to go beyond the terms or time of his contracted agreement. Thus, holders of contracts that are to be exercised should take extra care to see that ample notice is given to exercise options before expiration time. The holder of a contract should acquaint himself with the rules of his stock-exchange house and the latest time he may give instructions to exercise an option.
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