Life is like a portfolio of options - when we approach expiration, we aren’t always sure what we’re going to get. Don’t worry, here’s a refresher to see what happens to:


If you are trading cash-settled indexes such as SPX, NDX, RUT, etc. then you’re battling an entirely different animal. To learn how cash-settled indexes are handled then click here.


Do you have a spread that's facing expiration and wondering what happens? To learn more, please click here.


Long Expiring Equity or ETF Options

Any long option that expires at least $0.01 in the money is automatically exercised. Any long option that does not expire at least $0.01 in the money won’t be automatically exercised. Your account is charged a $5-per-strike exercise fee, and the resulting position and fee will appear in your account the next trading day. 


Long Options @ Expiration

In the majority of cases, this is what happens with a Long option positions at expiration when you do NOT hold the underlying:

XYZ stock closes at $100 on Expiration Day
PositionITM/OTMAuto-Exercise?FeeResulting Position
1 Long 95 CallITMYes$5Long 100 shares of XYZ @ $95
1 Long 105 CallOTMNoNoneNone, you lose the premium paid
1 Long 95 PutOTMNoNoneNone, you lose the premium paid
1 Long 105 PutITMYes$5Short 100 shares of XYZ @ $105

 


Short Expiring Equity or ETF Options

As an option writer/seller, you are selling the buyer the option to require you to buy from/sell to them (depending on whether you are selling calls or puts). Therefore, when you sell an option, you take on responsibility for a possible obligation to fulfill your side of the contract or being assigned. Remember, you have no control over the counterparty’s decision to exercise (assign the option to you, the seller, which triggers the fulfillment of your obligation). 


If a short option expires in-the-money, it is likely that it will be exercised, and you will be assigned, but it is also possible (though much less likely) that it will not be exercised and you will not be assigned. In most cases, you can expect in-the-money options to be exercised, but there are no guarantees, as buyers might have different plans for the option based on their own plans for their portfolios.  


If a short option expires at-the-money or out-of-the-money, it is likely that it will not be exercised, and you will not be assigned, but it is also possible (though less likely) that it will be exercised and you will be assigned. In most cases, you can expect at-the-money or out-of-the-money options not to be exercised, but there are no guarantees, as buyers might have different plans for the option based on their own plans for their portfolios. When you are assigned options, your account will be charged a $5-per-strike assignment fee, and the resulting position and fee will appear in your account the next trading day.   


Short Options @ Expiration

In the majority of cases, this is what happens with a Short option positions at expiration when you do NOT hold the underlying:

XYZ stock closes at $100 on Expiration Day
PositionITM/OTMAuto-Exercise?FeeResulting Position
1 Short 95 CallITMYes$5Short 100 shares of XYZ @ $95
1 Short 105 CallOTMNoNoneKeep collected premium
1 Short 95 PutOTMNoNoneKeep collected premium
1 Short 105 PutITMYes$5Long 100 shares of XYZ @ $105

 

Exercise and/or assignment may result in stock/ETF positions. If you do not have sufficient buying power to hold the stock position(s) that would result from the auto-exercise and/or assignment of the options you hold, our Risk and Margin team may close your position(s) or take other measures to reduce or eliminate potential stock exposure.



One Exception*

Options that expire out-of-the-money (OTM) typically become worthless and are removed from your account the next business day. There is no fee associated with options that expire worthless in your portfolio. *That said, there is one exception to short options position. Despite expiring OTM, short options positions still have assignment risk. The only way to eliminate assignment risk is by closing out of your short options position before expiration.