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 index options 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 (ITM) is automatically exercised. As a result, there is a $5-per-strike exercise fee, and the resulting position plus the exercise fee will appear in your account the next trading day. Any long option that does not expire at least $0.01 ITM will not automatically exercise and expire worthless. There is no fee charged for out-of-the-money (OTM) options that expire worthless.


Long Options @ Expiration

In the majority of cases, this is what happens with a long option position 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

If you do not have sufficient buying power to hold the stock position(s) that would result from the auto-exercise of a long option you hold, then our Risk team may close your position(s) or take other measures to reduce or eliminate potential stock exposure. To learn more about our expiration risk process, please click here.


Short Expiring Equity or ETF Options

As an option writer/seller, you are selling the buyer the option to require you to buy or sell shares to them. 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 ITM, it will likely automatically exercise, and you will be assigned shares. However, it is also possible (though much less likely) that it will not exercise and you will not be assigned shares. In most cases, you can expect ITM options to exercise automatically. That said, there are no guarantees, as buyers might have different plans for the option based on their portfolio strategies.


If a short option expires OTM, likely, it will not automatically exercise, and you will not be assigned. However, it is also possible (though less likely) that it will exercise and be assigned shares. In most cases, you can expect OTM options not to be exercised, but there are no guarantees. When assigned on an option, your account is charged a $5-per-strike assignment fee, and the resulting position and fee will appear in your account the next trading day.  


Lastly, at-the-money (ATM) options. Generally, they are not exercised by the counterparty. However, it is effectively 50/50 whether or not a short option that expires ATM will result in an assignment. 


To conclude, the only way to eliminate any assignment risk is by closing out of any short options before expiration.


Short Options @ Expiration

In the majority of cases, this is what happens with a short option position 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

If you do not have sufficient buying power to hold the stock position(s) that would result from the assignment of a short option you hold, then our Risk team may close your position(s) or take other measures to reduce or eliminate potential stock exposure. To learn more about our expiration risk process, please click here.


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.