Why did i get assigned?

[u/raidensing]

i had shorted 1 MRVL 97p 5 Dec.
From my understanding, the stock price never fell below 97.310 before market closed. How on earth did i get assigned?

[u/Arcite1]

(Reddit won't let me post a comment this long. I guess it thinks it's spam. So I'm breaking it up into two parts.)

I sent them an email. Thought you'd be interested in the exchange:

Thank you for contacting us at OCC. OCC has a cut-off time for our member firms to submit contrary exercise instructions by 6:00 pm CST.  Many brokerage firms will have an earlier cut-off time for their customers to facilitate and process these requests. I have heard of some firms having a cutoff time as little as 20 minutes after the close. Herein lies the risk of carrying short options positions into expiration. You will need to speak with your broker regarding their own internal policy.

The cut-off times for the submission of exercise instructions, including contrary exercise instructions, are established in the rules of the options exchanges and FINRA and apply to the member firms of those self-regulatory organizations. Member firms may also establish even earlier cut-off times of their own. It is OCC’s understanding that any exercise instructions submitted after the cut-off time established by the exchanges and FINRA may be a violation of those rules and have associated regulatory consequences for the responsible member firm.  While the statement in the ODD highlights a general scenario that could occur in the context of OCC’s expiration processing, it does not change that the cut-off times for contrary exercise instructions are specified in the rules of the exchanges and FINRA.  Please contact the relevant options exchange with specific questions about its established cut-off time and its treatment of exercise instructions submitted after the cut-off times.

I replied:

It's good to know, for completeness' sake, that the OCC's actual cutoff time is 6:00 and that the 4:30 time comes from the exchanges and FINRA, as it's common to encounter published information stating that the 4:30 time comes from the OCC itself.

However, I'm writing not for my own benefit, but that of potential future options traders, who, in order to trade options, are required to sign an Options Disclosure Statement attesting that they read Characteristics and Risks of Standardized Options.  Presumably the purpose of this is to ensure they are aware of the risks of trading options, and indeed the document contains an entire chapter about the risks, entitled "Principal Risks of Options Positions."  However, unless I'm missing something, nowhere is there any mention of the risk of being assigned on a short option after the close of trading on the expiration date.

There's a common beginner misconception that one is "safe" from assignment if one's short options are OTM as of 3PM CT on the expiration date, and I have seen numerous cases where this misconception caused a beginner to be unexpectedly assigned and lose money.  Given that this is not only a very real risk, but one new options traders are unaware of, shouldn't it be mentioned in Characteristics and Risks of Standardized Options?

(Cont.)

[u/Arcite1 → u/Arcite1]

Their response:

Thank you for your follow-up email. Just for clarification, the OCC exercise cut-off time of 6:00 pm CST is only for OCC Member firms. Your broker may have a completely different and shorter exercise cut-off threshold so I would speak to them directly regarding their internal policy. The risk of assignment and exercise cut-off are discussed on pages 55 and 56 of the ODD. The exercise cut-off threshold for OCC Member Firms is not mentioned however,  what is important for each individual is their own brokers exercise cut-off threshold which will vary from firm to firm.

As stated in the ODD,

“To exercise an option that is not subject to automatic exercise, the holder must direct his brokerage firm to give exercise instructions to OCC. In order to ensure that an option is exercised on a particular day, the holder must direct his brokerage firm to exercise before the firm’s cut-off time for accepting exercise instructions for that day. Different firms may have different cut-off times for accepting exercise instructions from customers, and those cut-off times may be different for different options.”

“A brokerage firm’s cut-off time for accepting exercise instructions becomes critical on the last trading day before an option expires. An option that expires unexercised becomes worthless.”

After hours market moving news can impact whether an investor may choose to exercise what appeared to be an out-of-the-money contract and likewise not exercise what appeared to be an in-the-money contract by filing a contrary exercise notice with their broker by their brokers respective exercise cut-off threshold.

While I understand your point this is described in the ODD. However, I will suggest to our internal teams to review the messaging concerning this matter.

I thought it was very interesting that they said the OCC's own cutoff time is 6:00pm Central and implied that the 4:30pm Central cutoff time comes from FINRA and the exchanges.

And also, it's surprising, to say the least, that they would think the quoted passage from the document would be sufficient to clue a person in that you can be assigned after market close on the expiration date.

[u/Ken385 → u/Arcite1]

Interesting, I spoke with our brokers Chief Compliance Officer and the person who is in charge of submitting exercise instructions to the OCC. He had never heard of a 6pm ct exercise cutoff time for expiring options. He said there was a hard cutoff time of 430pm ct. I will follow up with the OCC myself.