Options Quick Facts - Expiration, Exercise and Assignment

When do options expire?

Expiration day for equity and index options is the Saturday immediately following the third Friday of the expiration month until February 15, 2015. On and after February 15, 2015, the expiration date will be the third Friday of the expiration month.



When is the last day to trade or exercise an equity option?

For equity options expiring prior to February 15, 2015, the expiration date is the Saturday immediately following the third Friday of the expiration month. For equity options expiring on or after February 15, 2015, the expiration date is the third Friday of the expiration month. The day expiring equity options last trade is the Friday before expiration, or the third Friday of the month. This is also generally the last day an investor may notify his brokerage firm of his intent to exercise an expiring equity call or put. Brokerage firms, however, may set an earlier deadline for notification of an option buyer's intention to exercise. Check with your brokerage firm about its procedures and deadlines for instruction to exercise any equity options. If Friday is a holiday, the last trading day will be the preceding Thursday.



When is the last day to trade an index option?

This depends on whether the option is American- or European-style:

For American-style index option contracts the last trading day is generally the third Friday of the expiration month, unless that day is an exchange holiday in which case the last trading day will be the previous day, or Thursday.

For European-style index option contracts the last trading day will be the business day (generally a Thursday) preceding the day on which the exercise settlement value is calculated (generally the third Friday of the month unless that day is a holiday).



When is the last day to exercise an index option?

An American-style index option may be exercised at any time prior to its expiration, or at any time up to and including the Third Friday of the expiration month. A European-style index option may be exercise only during a specific period of time just prior to its expiration - generally on the last Friday prior to its expiration date.



What is "automatic exercise" of an option?

The Options Clearing Corporation has provisions for the automatic exercise of certain in-the-money options at expiration, a procedure also referred to as "exercise by exception." Generally, OCC will automatically exercise any expiring equity call or put in a customer account that is $0.01 or more in-the-money, and an index option that is $.01 or more in-the-money. However, a specific brokerage firm's threshold for such automatic exercise may or may not be the same as OCC's.



When and how is an equity option exercised?

An investor with a long equity call or put position may exercise that contract at any time before the contract expires, up to and including the Friday before its expiration. To do so, the investor must notify his brokerage firm of intent to exercise in a manner, and by the deadline specified by that particular firm.



Must you exercise an expiring in-the-money equity option?

An investor with an expiring long equity call or put position that is subject to automatic exercise does not have to exercise the contract. Instructions may be given through a brokerage firm to OCC not to exercise a call or put that is in-the-money by any amount.



What happens to my long option if I never sell or exercise it?

After its expiration date a call or put will cease to exist. If you own an option and it expires unexercised, you no longer have any of the rights inherent in that contract and you lose the premium you paid for it, plus any commissions and fees you incurred at its purchase. You are free to close out a long call or put before expiration by selling it if it has market value.



How do you nullify the obligations of a short call or put?

Any investor with an open short position in a call or put option may nullify the obligations inherent in that short (or written) contract by making an offsetting closing purchase transaction of a similar option (same series) in the marketplace. This transaction must be made before assignment is received, regardless of whether you have been notified by your brokerage firm to this effect or not.



When can you be assigned on a short equity option position?

As an equity call or put option holder may exercise the contract at any time before it expires, an equity option writer may be assigned an exercise notice at anytime before expiration.



When will notice of assignment on a short contract be received?

Generally, brokerage firms will deliver notice of assignment on short option positions on the business day following an option owner's exercise of a similar option. Check with your brokerage firm about its procedures and timing for such notification.



Will you be assigned on an equity option contract that expires exactly at-the-money?

Some professional traders will exercise an expiring call or put that is exactly at-the-money, therefore assignment on such a short contract is possible.



What happens to my short option if I am never assigned?

After its expiration date a call or put will cease to exist. If you have written an option and are not assigned an exercise notice before it expires, you no longer have any of the obligations inherent in that contract and you keep the premium you received for it, less any commissions and fees you incurred at its initial sale. You are free to close out a short call or put before expiration by purchasing a like contract in the marketplace.



When might I anticipate early assignment on a short equity call?

When an underlying stock is about to pay a regular, cash dividend investors with short positions in near-term, in-the-money calls might anticipate assignment. Assignment is more likely when the dividend amount is greater than the time value remaining in the call's current premium amount.



When might I anticipate early assignment on a short equity put?

Many professional option traders will exercise deep in-the-money puts when expiration nears and there is little or no time value remaining in the options' premium. For this reason, an investor with a short position in such contracts might expect early assignment.



If my short equity option closes .01 in-the-money on expiration Friday will I be assigned?

Many option traders (both professionals and individual investors) will exercise, as they have the right, an expiring option that is in-the-money by any amount, even though this amount may be less than OCC's thresholds for automatic exercise. Therefore, you might anticipate assignment on any in-the-money option at expiration.



If my short equity option closes exactly at-the-money on expiration Friday will I be assigned?

This is entirely possible, though not predictable. On occasion, option professionals will exercise expiring contracts that are exactly at-the-money at expiration to acquire or sell underlying shares for adjusting their option risk after the close of trading.

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