Expiration Handling for Options on Halted Underlyings

# If RSX is still halted on expiration, what shall happen to my puts on RSX?


# If RSX is still halted on expiration, what shall happen to my puts on RSX?












I bought put options on RSX expiring March 11 2022. I want to sell them for cash and profit! I don't want RSX shares!

6 hours ago, my brokerage emailed me that I cannot sell or exercise my puts. What will happen on expiration, if trading on RSX is still halted? Will my puts expire 100% worthless at $0?

If I recall, after options on Greek ETFs had been halted in the past, the CBOE extended the options deadline.

## Answer by pyCthon (score 0, accepted)

https://quant.stackexchange.com/a/70181

Here's a copy paste of the OCC policy on halted securities and a note specifically regarding puts from the OCC.

Rule 805 provides that if an underlying security is not traded on the last trading day before expiration, OCC may either (i) fix a closing price on such basis as it deems appropriate (including using the last sales price from the most recent trading day for which a last sales price is available); or (ii) determine not to fix a closing price for that security, in which case clearing members may exercise by only giving OCC affirmative instructions. In conjunction with its assessment of the methodology used to select closing prices for expiration processing (see Information Memo #26849), OCC also assessed its policy on fixing closing prices for underlying securities in which trading has been halted. After consulting with its clearing members, OCC has determined to establish the following policy:

- If OCC becomes aware at any time on or before expiration Monday that trading in an underlying security has been halted, and if trading does not resume before expiration, OCC will not apply exercise by exception (ex by ex) procedures with respect to options on that security.

- If OCC does not become aware until expiration Tuesday or thereafter that trading in an underlying security has been halted, and if trading does not resume before expiration, ex by ex procedures will apply and OCC will fix a closing prices on such basis as it deems appropriate in the circumstances (including, without limitation, using the last sales price from the most recent trading day for which a last sales price is available).

- If OCC becomes aware before the close of trading on expiration Friday that trading in a previously halted underlying security has resumed, ex by ex procedures will apply and OCC will fix a closing price for that security in the normal manner. If ex by ex processing procedures are suspended for an underlying security, any expiring long positions that a Clearing Member wishes to exercise on expiration Saturday must be entered manually via the Ex by Ex Instruction entry screen in ENCORE. OCC will notify Clearing Members of any issues removed from ex by ex through information memos and Member Radar.

PUT OPTION EXERCISE CONSIDERATIONS

Although OCC has not imposed exercise restrictions on the options referenced in this Information Memo, the acceptance of a customer’s exercise instructions by a brokerage firm may also be affected by rules or regulations promulgated by regulatory authorities and other self-regulatory organizations. OCC’s rules and procedures do not override or take precedence over these regulations. Questions about such rules or their applicability to the exercise of a given option position should be addressed to the brokerage firm holding the investor’s position.

## Answer by Dimitri Vulis (score 1)

https://quant.stackexchange.com/a/70179

There was an article on Bloomberg on this very problem:

https://www.bloomberg.com/news/articles/2022-03-14/options-traders-who-correctly-bet-against-russia-can-t-cash-out

> Options Traders Who Correctly Bet Against Russia Can’t Cash Out Brokerage clients can’t unwind positions with market frozen Clearinghouse leaving it to firms to handle some requests By Elaine Chen and Annie Massa March 14, 2022, 8:50 AM EDT As Russia began its invasion of Ukraine, Jennifer Stockman wagered against the aggressors. Stockman, who helps raise money for a health-care organization, bought put options on a Russia-linked fund using her personal accounts at Fidelity Investments and Charles Schwab Corp.’s TD Ameritrade. The bet looked like a winner. The ruble plunged along with exchange-traded funds tied to Russian securities as other nations imposed crippling sanctions. But now, with Russia’s stock market frozen and securities tracking Russian assets halted, Florida-based Stockman can’t cash in. Instead, in both accounts, she found herself hamstrung and unable to exercise her put contracts on the VanEck Russia ETF, some of which are set to expire Friday. The puts were worth about \$6,000 combined when trading in the fund was halted. “I’m not a Wall Street person, I’m a regular person, so it’s a lot of money to me.” Stockman said. “It’s even more frustrating that it was a good trade and it was a good position to take, and I know that I was right.” Stockman, 38, is one of an untold number of options investors whose seemingly prescient bets against Russian securities may wind up worthless. Margaret Farrell, a Schwab spokeswoman, said in an email that the firm is “making every effort to be as flexible as possible in allowing our clients to reduce their risk exposure by continuing to allow clients to exercise options consistent with our policies.” She declined to comment on Stockman’s case. Susan Coburn, a Fidelity spokeswoman, declined to comment. At stake is about \$370 million: That’s the value of open interest on all put options expiring this year for a group of Russia-tied securities, including the VanEck Russia ETF, Direxion Daily Russia Bull 2X Shares, Yandex NV, Qiwi Plc, Ozon Holdings Plc, Mobile TeleSystems PJSC and Mechel PJSC, according to data compiled by Bloomberg. Now brokerages are trying to figure out how to respond. The problem is that individual investors like Stockman hold options contracts allowing them to sell shares of Russian-linked securities. But with the instruments halted in U.S. trading (and with the Moscow Exchange closed), it’s unclear whether traders will be able to exercise the contracts at all. The firms have been inundated with customer complaints. Options Clearing Corp., an anchor of the marketplace, also shifted its policies. Under normal circumstances, the clearinghouse automatically clears options transactions that are in the money -- or when the strike price exceeds the market value of the underlying security. For options on a group of Russian securities, however, OCC said it won’t automatically clear the transactions. Jeff Porter, a 36-year-old attorney based in Arizona, owns puts on the VanEck Russia ETF expiring this Friday that were worth about $50,000 at the time the fund was halted. He, too, can’t exercise his options because Fidelity told him there aren’t shares available to borrow to facilitate such a transaction, he said. “It feels like the market doesn’t permit you to be too correct,” Porter said. The experience has “certainly made me question the value of options as a hedge or as an investment if they can just be wiped off the table arbitrarily.”

I recall a similar problem when Argentina defaulted on its sovereign debt in December 2001. The local stock market closed for a while and imvestors were unable to exercise their puts that were very far in the money. Eventually they expired.