Option expiration Options can expire on any day of the week. Most options now have weekly Friday expirations, although some have monthly and quarterly expirations. In some cases, options with Monday and Wednesday expirations have been introduced, and a few symbols now feature daily expirations. Automatic exercise on expiration day If you hold a long option that is $0.01 or more in-the-money through expiration day, the OCC (Options Clearing Corporation) will automatically exercise it using the official closing price. For call options, this means being $0.01 above the strike price, and for put options, $0.01 or below the strike price. This automatic exercise will result in your account buying or selling the underlying asset at the strike price. If you prefer to prevent automatic exercise, you must submit a Do-Not-Exercise instruction via the in-app Help Center or by speaking with a broker by 4:00 PM EST (market close). Please Note: Deliverables may change. Out-of-the-money exercise or at-the-money exercise on expiration day Options that are out-of-the-money or at-the-money will not be automatically exercised by the OCC (consider the $0.01 threshold). However, you can still choose to exercise these options by providing instructions. To do so, submit your exercise request via the in-app Help Center or by speaking with a broker by 4:30 PM EST on expiration day (by market close on half days). Short options, assignment & delivery Assignment For equity and index options, the OCC allocates assignment notices on a random basis. Delivery Delivery is the process of fulfilling the terms of a written option contract upon receiving an assignment notification. For a short equity call, the writer must deliver the stock and will receive cash in exchange. For a short equity put, the writer will pay cash and receive the stock. Please Note: Deliverables may change. Out-of-the-money short options Your short option could be assigned even if it is out-of-the-money or at-the-money. In some situations, it may be advantageous for an out-of-the-money option to be assigned, such as due to extended-hour market activity or for dividend claims. Therefore, being out-of-the-money does not guarantee that assignment will not occur. In-the-money short options at expiration In-the-money short options are not guaranteed to be assigned. The holder of the long option might decide not to exercise it by submitting a 'Do-Not-Exercise' instruction. Additionally, market activity during extended sessions could make exercising the option uneconomical. Therefore, even if your short option is in-the-money, there is no certainty that you will be assigned. Expiration & account equity You are responsible for reviewing your expiring option positions and ensuring your account has enough equity to support an exercise or assignment. It is important to understand the risks and maintain sufficient equity to cover a short option assignment. Even if your option is out-of-the-money, assignment is still possible. Be aware of the deliverables of your option and the responsibilities involved in the exercise/assignment process. The resulting position may incur margin charges, hard-to-borrow fees, and other market risks. Webull auto-liquidation & expiration risk Webull does not allow the opening of same-day expiring options past 3:40 PM EST. Any such orders will be canceled. We expect customers to close any out-of-the-money, in-the-money, or at-the-money options at least 35 minutes before market close to mitigate risks. Failure to do so may result in auto-liquidation, a do-not-exercise, exercise, or assignment, depending on whether your account has sufficient equity to support the position. Webull is not obligated to take these actions, and it is your responsibility to manage your positions and understand the risks involved. Webull Financial, LLC reserves the right to close options positions that pose a risk if exercised or assigned. Spreads & expiration risks Spreads are often considered 'defined-risk' trades, referring to the maximum theoretical loss or gain at the time of entry. However, the term "theoretical" is key, as spreads can pose additional risks at expiration. Spread Expiration Risk occurs when an exercise or assignment creates an unhedged underlying position, potentially altering the risk profile and margin requirement. Here’s an example to illustrate: A trader sets up a 10-lot short vertical call spread on XYZ with a $10.00 width:
The initial margin requirement is $10,000 ($10 wide x 1000 shares). Scenario 1: XYZ closes at $105 on expiration day, between the strikes. The $100 call is in-the-money, while the $110 call expires worthless. The trade's risk shifts from the defined $10,000 to a potential $100,000 assignment through expiration, known as ‘pin-risk.’ This occurs when the underlying price pins between the strikes and requires careful management. Scenario 2: XYZ closes at $99, both options out-of-the-money. If XYZ later rises to $103 in extended trading, the $100 call might be assigned. For instance, if the trader is assigned on 8 of the 10 contracts on Monday, they would have to buy 800 shares at $100 each. If XYZ then rises to $115, the trader could incur a loss of $12,000, exceeding the initial theoretical max loss of $10,000. Additional fees might apply if XYZ is a hard-to-borrow security. If the long option ends up in-the-money, please instruct us to submit a Do-Not-Exercise request by 4:00 PM or market close on expiration day. It’s crucial to understand and manage all risks associated with spreads. After expiration If the exercise or assignment leads to a Reg T or Money Due Call, you can avoid restrictions or penalties by covering the call on the day following expiration (T+1). Early exercise of options To submit an early exercise request, you can use the app or contact a broker. Currently, the in-app exercise feature is available only for single-leg options. For options within a complex strategy such as spreads, please submit your exercise instructions either by phone or the in-app Help Center. Requests must be submitted by 4:30 PM EST, or 30 minutes after market close on half days. Requests received after 4:30 PM EST will be reviewed on a best-efforts basis. On expiration day, instructions are accepted up until 4:00 PM EST or market close. If we cannot process your request, you will receive an exercise cancellation, and you can resubmit the next trading day. Requests made after 5:30 PM EST or 1.5 hours after market close will be rejected and must be resubmitted on the next trading day. Once an exercise instruction is submitted, your option will be frozen until we submit it to the OCC. Ensure you maintain sufficient equity or underlying shares to support the early exercise of a call or put option contract throughout the trading day until 8 PM EST. Exercise requests are processed overnight, and your position and balances will be updated on the next business day. |
Option trading entails significant risk and is not appropriate for all investors. Option investors can rapidly lose the entire value of their investment in a short period of time and incur permanent loss by expiration date. You need to complete an options trading application and get approval on eligible accounts. Please read the Characteristics and Risks of Standardized Options and Option Spread Risk Disclosure before trading options. |