Expiration, exercise, and assignment
Unlike stocks, options have set expiration, exercise, and assignment dates.
Each option contract has a set expiration date. This date significantly impacts the value of the option contract because it limits the time you can buy, sell, or exercise the option contract. Once an option contract expires, it will stop trading and either be exercised or expire worthless.
The following are a few important things to keep in mind as the expiration date of an option contract approaches:
In-the-money, at-the-money, and out-of-the-money refer to the position of the underlying security’s price relative to the strike price of the option. They’re also sometimes referred to as the moneyness of an option.
To learn more, check out Options trading from the pros.
If your option is in-the-money at the market’s close, Robinhood will attempt to exercise it for you at expiration unless:
Once your contract expires, it’ll move to your expired contracts in your account History.
After-hours price movements can change the in-the-money or out-the-money status of an options contract.
If for any reason we can't sell your contract, and you don’t have the necessary buying power or shares to exercise it, we may attempt to submit a DNE request to the Options Clearing Corporation (OCC), and your contract should expire worthless.
To determine if an option position is “at risk of being in-the-money,” Robinhood will calculate an estimated upper and lower bound for the underlying security’s close price on the expiration date. If your option’s strike price falls within these parameters, we may place an order to close your position.
If your option is in-the-money, Robinhood will typically exercise it for you at expiration automatically. However, you can also exercise your options contract early in the app:
You’ll then be guided through steps to exercise your contract.
Before expiration day, an early exercise request will be submitted immediately if it’s placed during regular market hours (9 AM-4 PM ET) and trading days. Contact us before 5 PM ET if you’d like to cancel an exercise request.
Early exercise requests submitted after 4 PM ET will be queued for the next trading day. You can cancel a pending exercise request until 11:59 PM ET.
On expiration day, you won’t be able to submit an early exercise request in the app or on the web after 4 PM ET. Contact us to request an exercise request after 4 PM ET. We’ll try to accommodate exercise requests until 5 PM ET on a best-effort basis.
After you exercise an option, you’ll get an in-app confirmation that your option was exercised and that the associated shares are pending. You’ll also get an email and an in-app notification before the next trading day confirming that your option was exercised or assigned (after we receive confirmation from the OCC).
If your option is out-of-the-money, Robinhood will take no action and the contract will typically expire. If you’d like to submit a DNE request, you must contact us before 5 PM on the expiration date.
When you are assigned, you have the obligation to fulfill the terms of the contract. When you sell-to-open an options contract, you can be assigned at any point prior to expiration (regardless of the underlying share price).
Depending on the collateral held for a short contract, a few different things can occur. For more details, check out Navigating exercise & assignment.
Check out Advanced options strategies (Level 3) to learn more about calls, puts, and multi-leg options strategies.
On rare occasions, the in-the-money short option of a spread won’t get assigned. This happens when the counterparty files a DNE request for their in-the-money option, or a post-market movement shifts the option from in-the-money to out-of-the-money (and the contract holder decides not to exercise). In this scenario, you’ll likely be long or short the stock the following trading day, potentially resulting in an account deficit or margin call.
All resulting short stock positions must be covered the following trading day.
The scenario listed above could result in a gain or loss that’s greater than theoretical max gain or loss on the position.
If you’re trading a multi-leg options strategy and are assigned a short position before expiration, keep the following in mind, such as any account deficits or margin calls.
Early assignment may result in decreased buying power. This is because the positions you hold are used to calculate your buying power, and at the time you’re assigned, you may not have the shares (for call spreads) or the buying power (for put spreads) needed to cover the deficit in your account. If you have an account deficit, you can’t open new positions until the deficit is resolved.
Early assignment may also result in an account deficit if it causes you to use more buying power than you have available. When you have an account deficit, there are a few potential actions that you can take, including exercising your long contract or buying/selling shares. If you have an account deficit and choose to exercise your long contract to increase your buying power, you will not be able to open new positions while your exercise is pending. But you should be able to open new positions once your exercise has been processed if exercising your long contract is sufficient to cover your account deficit.
Early assignment may also result in margin call if it causes your account value to fall below your margin maintenance requirement. When you have a margin call, there are a few potential actions that you can take: exercising your long contract, buying/selling shares by placing orders, or depositing enough funds to cover the margin call. If you have a margin call and choose to exercise your long contract to decrease your margin deficiency, your margin call may persist while your exercise is pending or, further, if the exercise was not sufficient enough to cover your margin deficit. If exercising your long contract is sufficient to cover your margin deficiency, any margin calls should be satisfied once your exercise is processed.
Keep in mind that we can’t process an early assignment before the end of the trading day and, so we can’t exercise the long leg until the next trading day (at the earliest). That’s because the Options Clearing Corporation (OCC) doesn’t notify us of your assignment until after the market closes (when they process assignments). While funds and shares that result from exercises are made available immediately during market hours, positions exercised after market hours are queued and credited to your account the next trading day.
A few things can happen if your option is exercised early (also known as an early-exercise), depending on the time of day.
If the early exercise occurs during market hours (9 AM-4 PM ET), the associated shares will show in your account immediately, and will no longer show as a pending exercise in your account.
If the early exercise occurs after 4 PM ET, it’ll be queued for the next trading day, and the associated shares will remain pending until the exercise has cleared.
Some underlying assets (like exchange-traded products) are eligible for late-close options trading until 4:15 PM ET. Check out Options trading hours for details.
If the early exercise occurs after 4 PM ET, it’ll be queued for the next trading day, and the associated shares will remain pending until the exercise has cleared.
Once your contract has been exercised or assigned, we’ll hold the associated shares or cash collateral until we receive confirmation from the OCC that all aspects of the exercise or assignment have cleared. This process typically takes 1 business day. Once completed, the pending state of the exercise or assignment will be removed and your account will be updated accordingly.
Dividend risk is the risk that you’ll get assigned on a short call position (either as part of a covered call or spread) the trading day before the underlying security’s ex-dividend date. If this happens and you don’t own 100 shares of the stock, you’ll open the ex-date with a short stock position and actually be responsible for paying that dividend yourself. You can potentially avoid this by closing any position that includes a short call option at any time before the end of regular market hours on the trading day before the ex-date.
Robinhood may take action in your brokerage account to close any positions that have dividend risk the trading day before an ex-dividend date. Generally, we’ll only take action if the dividend that would be owed upon assignment represents a large portion of your total account value, which we’ll try to do on a best-effort basis.
Let’s say, XYZ is going to pay a dividend as follows:
If you’re short, or you’ve sold an option call contract for XYZ that’s expiring on or after October 1, you’re at risk of an assignment.
For example, if you get assigned on September 30, you’d have a short position of 100 shares that were exercised by the counterparty (a person who bought and exercised the call option) when the market opens on October 1. If this occurs, you’ll have to deliver the underlying shares and pay the counterparty the dividend that is associated with these shares.
In this example, you’d owe a dividend of $100, which is $1 x 100 shares. We’d automatically deduct the dividend amount from your account, even if it causes you to have a negative balance.
You can avoid this dividend risk by closing your option before the market closes on any trading day before the ex-dividend date.
The day before the ex-dividend, we’ll try to prevent you from selling to open new short call options that are likely to be assigned that same night if the underlying symbol ex-dividend date occurs on the next trading day. This is only temporary, and you can open new short call positions on or after the ex-dividend date.
Any hypothetical examples are provided for illustrative purposes only. Actual results will vary.
Content is provided for educational purposes only, doesn't constitute tax or investment advice, and isn't a recommendation for any security or trading strategy. All investments involve risk, including the possible loss of capital. Past performance doesn't guarantee future results.
If multiple options positions or strategies are established in the same underlying symbol, Robinhood Financial may deem it necessary to pair or re-pair the separately established options positions or strategies together as part of its risk management process.
Robinhood Financial doesn't guarantee favorable investment outcomes. The past performance of a security or financial product doesn't guarantee future results or returns.
Customers should consider their investment objectives and risks carefully before investing in options. Because of the importance of tax considerations to all options transactions, the customer considering options should consult their tax advisor as to how taxes affect the outcome of each options strategy.
Margin trading involves interest charges and risks, including the potential to lose more than deposited or the need to deposit additional collateral in a falling market. Before using margin, customers must determine whether this type of trading strategy is right for them given their specific investment objectives, experience, risk tolerance, and financial situation. For more information, review Robinhood Financial’s Margin Disclosure Statement, Margin Agreement and FINRA Investor Information. These disclosures have information on Robinhood Financial’s lending policies, interest charges, and the risks associated with margin accounts.