What to do with expiring stock options
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. How do I provide exercise instructions?
Do I have to notify IB if I want my long option exercised? What if I have a long option which I do not want exercised? What can I do to prevent the assignment of a short option? Is it possible for a short option which is in-the-money not to be assigned? What happens if I have a spread position with an in-the-money option and an out-of-the-money option? Can IB exercise the out-of-the-money long leg of my spread position only if my in-the-money short leg is assigned?
What happens to my long stock position if a short option which is part of a covered write is assigned? Am I charged a commission for exercise or assignments?
What happens if I am unable to meet the margin requirement on a stock delivery resulting from an option exercise or assignment? 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 quantityshould be created in a ticket via the Account Management window.
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. In these situations, IB will make every effort to provide advance notice to the account holder of their obligation to what to do with expiring stock options, however, account holders purchasing such options on the last day of trading are not likely to be afforded any notice.
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 IB with contrary instructions to let the option lapse.
The only action one can take to prevent being assigned on a short option position is to buy back in the option prior what to do with expiring stock options the close of trade on its last trading day for equity options this is usually the Friday preceding the expiration date although there may also be weekly expiring options for certain classes.
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. 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 what to do with expiring stock options possible through these random processes that short positions in what to do with expiring stock options account be part of those which were not assigned. Spread positions can have unique expiration risks associated with them.
Account holders are ultimately responsible for taking action on such positions and responsible for the risks associated with any unhedged spread leg expiring in-the-money.
There is no provision for issuing conditional exercise instructions to What to do with expiring stock options. 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.
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. What to do with expiring stock options price at which that long stock position will be closed out is equal to the short call option strike price. There is no commissions charged as the result of the delivery of a long or short position resulting from option exercise or assignment of a U.
You should review your positions prior to expiration to determine whether you have adequate equity in your account to exercise your options. You should also determine whether you have adequate equity in the account if an in-the-money short option position is assigned to your account.
You should also be aware that short options positions may be exercised against you by the long holder even if the option is out-of-the-money. If you anticipate that you will be unable to meet the margin requirement on a stock delivery resulting from an option exercise or assignment, you should either close positions or deposit additional funds to your account to meet the anticipated post-delivery margin requirement.
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, IB may liquidate positions to restore margin compliance. Click on a question in the table of contents to jump to the question in this document.
Some beginning option traders think that any time you buy or sell options, you eventually have to trade the underlying stock. There are actually three things that can happen. Outcome 1 is actually the most frequent. The fact that option what to do with expiring stock options can be opened or closed at any given point prior to expiration leads us to the mysterious and oft-misunderstood concept called open interest. Options involve risk and are not suitable for all investors. For more information, please review the Characteristics and Risks of Standardized Options brochure before you begin trading options.
Options investors may lose the entire amount of their investment in a relatively short period of time. Multiple leg options strategies involve additional risksand may result in complex tax treatments.
Please consult a tax professional prior to implementing these strategies. Implied volatility represents the consensus of the marketplace as to the future level of stock price volatility or the probability of reaching a specific price point. The Greeks represent the consensus of the marketplace as to how the option will react to changes in certain variables associated with the pricing of an option contract.
There is no guarantee that the forecasts of implied volatility or the Greeks will be correct. Ally Invest provides self-directed investors with discount brokerage services, and does not make recommendations or offer investment, financial, legal or tax advice. System response and access times may vary due to market conditions, system performance, and other factors. Content, research, tools, and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy.
The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, are not guaranteed for accuracy or completeness, do not reflect actual investment results and are not guarantees of future results.
All investments involve risk, losses what to do with expiring stock options exceed the principal invested, and the past performance of a security, industry, sector, market, or financial product does not guarantee future results or returns.
The Options Playbook Featuring 40 options what to do with expiring stock options for bulls, bears, rookies, all-stars and everyone in between. Calendar year Source: Meet the Greeks What is an Index Option?