Final Settlement of Stock Options requires physical delivery of the underlying stocks vs. payment of the strike value in cash. In case a client is holding a stock options position, but is short either cash or stocks, he will not be able to settle the options position and the client will fail to deliver on his contractual obligation.
As a general rule, Saxobank clients have responsibility to meet the delivery requirements related to their option positions. As such Saxobank will not pre-emptively act on client positions to avoid delivery failure. It will be the responsibility of the client to manage his positions especially when approaching expiry to make sure he can meet any delivery obligations. Notwithstanding the above, in case Saxobank could be exposed to uncollateralized losses incurred by clients, Saxobank reserves the right to act pre-emptively and close-out some or all of the client’s positions that could cause potential losses which the client cannot carry on his account balances.
In case a client failed to meet his delivery obligation, Saxobank will act on behalf of the client and without the need to notify the client in advance to resolve the delivery failure. Saxobank will resolve a short stock position by acquiring the required stocks at market price, Saxobank will resolve a short cash position by liquidating any or all positions under delivery and if available any long option position that provided cover for a settling short option position.
Transactions executed for the purpose of default handling, will be charged additional commissions.
Therefore Saxo Bank recommends the Clients to close the position before expiry.