The following page has been created in attempt to assist traders by providing answers to frequently asked questions related to US security option expiration, exercise, and assignment. Please feel free to contact us if your question is not addressed on this page or to request the addition of a question and answer.
Please click on a question in the table of contents below to get answers to your options questions.
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How do I provide exercise instructions?
Instructions are to be entered through the TWS Option Exercise window. Procedures for exercising an option using the Place Trade Trader Workstation can be found in the TWS User's Guide.
Important Note: In the event that an option exercise cannot be submitted via the TWS, an option exercise request with all pertinent details (including option symbol, account number and exact quantity), should be created in a ticket via the Account Management window. In the Account Management window, click on "Inquiry/Problem Ticket". The ticket should include the words "Option Exercise Request" in the subject line. Please provide a contact number and clearly state in your ticket why the TWS Option Exercise window was not available for use.
In the case of exchange listed U.S. securities options, the clearinghouse (OCC) will automatically exercise all cash and physically settled options which are in-the-money by at least $0.01 at expiration (e.g., a call option having a strike price of $25.00 will be automatically exercised if the stock price is $25.01 or more and a put option having a strike price of $25.00 will be automatically exercised if the stock price is $24.99 or less). In accordance with this process, referred to as exercise by exception, account holders are not required to provide Place Trade with instructions to exercise any long options which are in-the-money by at least $0.01 at expiration.
Important Note: in certain situations (e.g., underlying stock halt, corporate action), OCC may elect to remove a particular class of options from the exercise by exception process, thereby requiring the account holder to provide positive notice of their intent to exercise their long option contracts regardless of the extent they may be in-the-money. In these situations, Place Trade will make every effort to provide advance notice to the account holder of their obligation to respond, however, account holders purchasing such options on the last day of trading are not likely to be afforded any notice.
What if I have a long option which I do not want exercised?
If a long option is not in-the-money by at least $0.01 at expiration it will not be automatically exercised by OCC. If it is in-the-money by at least that amount and you do not wish to have it exercised, you would need to provide Place Trade with contrary instructions to let the option lapse. These instructions would need to be entered through the TWS Option Exercise window prior to the deadline as stated on our clearing firm's website.
What can I do to prevent the assignment of a short option?
The only action one can take to prevent being assigned on a short option position is to buy back in the option prior to the close of trade on its last trading day (for equity options this is usually the Friday preceding the expiration date). When you sell an option, you provided the purchaser with the right to exercise which they generally will do if the option is in-the-money at expiration.
Is it possible for a short option which is in-the-money not to be assigned?
While is unlikely that holders of in-the-money long options will elect to let the option lapse without exercising them, certain holders may do so due to transaction costs or risk considerations. In conjunction with its expiration processing, OCC will assign option exercises to short position holders via a random lottery process which, in turn, is applied by brokers to their customer accounts. It is possible through these random processes that short positions in your account are part of those which were not assigned.
Can Place Trade exercise the out-of-the-money long leg of my spread position only if my in-the-money short leg is assigned?
No. There is no provision for issuing conditional exercise instructions to OCC. OCC determines the assignment of options based upon a random process which is initiated only after the deadline for submitting all exercise instructions has ended. In order to avoid the delivery of a long or short underlying stock position when only the short leg of an option spread is in-the-money at expiration, the account holder would need to either close out that short position or consider exercising an at-the-money long option.
What happens to my long stock position if a short option which is part of a covered write is assigned?
If the short call leg of a covered write position is assigned, the long stock position will be applied to satisfy the stock delivery obligation on the short call. The price at which that long stock position will be closed out is equal to the short call option strike price.
Am I charged a commission for exercise or assignments?
There are no commissions charged as the result of the delivery of a long or short position resulting from option exercise or assignment of a US security option (note that this is not always the case for non-US options).
What happens if I am unable to meet the margin requirement on a stock delivery resulting from an option exercise or assignment?
If an option exercise or assignment results in the delivery of a long or short stock position and the account holder does not maintain sufficient equity to meet the ensuing margin requirement, Place Trade will act to liquidate positions to restore margin compliance. While Place Trade retains the right to liquidate at any time in such situations, liquidations involving U.S. security positions will typically begin at approximately 9:40 AM ET as of the business day following expiration.
Get a free copy of the OIC's Characteristics and Risks of Standardized Options to read prior to investing in options
Where can I get more Free Options Education and Information?
Options involve risk and are not suitable for all investors. For more information; please read “Characteristics and Risks of Standardized Options” before investing in options. For a free copy call 1-800-50-PLACE or 1-919-719-7200 or visit the OCC. There is no guarantee of execution. Orders will be routed to US options exchanges.
Any trading symbols displayed are for illustrative purposes only and are not intended to portray a recommendation.