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Expiration, Exercise, and Assignment

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Expiration

What it Means

Unlike a stock, each option contract has a set expiration date. The expiration 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.

What Happens

There are a few important things to keep in mind as the expiration date of your option contract nears:

  • We’ll attempt to exercise any option you own that is $0.01 or more in the money, as long as your account has the required buying power (in the case of a call option) or the necessary underlying shares to sell (in the case of a put option). Keep in mind that managing your options positions, including taking proactive steps to mitigate risk, is ultimately your responsibility.
  • If you don’t have enough buying power or shares to exercise your option, we may attempt to sell the contract in the market for you approximately 1 hour before the market closes on the options’s expiration date.
  • Robinhood’s risk checks are designed to close positions which accounts cannot support and take into consideration the value of a position, the implied risk, and the customer’s current balance, among other things.

If your option is in the money at the close, Robinhood will attempt to exercise it for you at expiration unless:

  • You don’t have sufficient buying power.
  • The exercise would result in a short stock position.
  • You have asked Robinhood to submit a Do-Not-Exercise request on your behalf.
  • The cut-off time for submitting a Do-Not-Exercise request is 5 PM ET.

If you have a long call about to expire:

  • If the contract is in the money (or at risk of being in the money), we’ll review your account to see if you have enough buying power to purchase the shares.
  • If you don’t have enough buying power to purchase the shares, we may attempt to sell the option. For example, if you have 10 contracts, but only enough buying power to purchase 500 shares, we may attempt to sell 5 contracts and allow 5 contracts to be exercised for a total of 500 shares.

If you have a long put about to expire:

  • If the contract is in the money (or at risk of being in the money), we’ll review your account to see if you have enough shares to sell.
  • If you don’t have enough shares, we may attempt to sell the option. If you have 10 contracts and own 500 shares, we will attempt to sell 5 contracts and allow the remaining 5 contracts to be exercised, which would result in 500 shares sold from your account.

If you have a spread about to expire:

  • If both legs are in the money (and neither leg is at risk of being out of the money at expiration). The short leg may be assigned, and the long leg may be exercised to offset the assignment.
  • If only one leg is (at risk of being) in or at the money, we may attempt to close the entire spread (including the leg that is out of the money).
  • If both legs are out of the money (and they aren’t at risk of being in the money at expiration), we typically won’t take action and both options should expire worthless.

Once your contract expires, we’ll remove it from your home screen. You can view your expired contracts in your account history.

Note

After-hours price movements can change the in the money or out of 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 Do Not Exercise request to the Options Clearing Corporation (OCC), and your contract will 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.

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Exercise

How to Exercise

If your option is in the money, Robinhood will typically exercise it for you at expiration automatically.

You can also exercise your options contract early in the app:

  1. Navigate to the options position detail screen
  2. Select Exercise

You’ll then be guided through steps to exercise your contract.

Note

Before expiration day, an early exercise request will be submitted immediately if it’s placed during trading between 9 AM ET and 4 PM ET. Please contact us before 5 PM ET if you’d like to cancel the exercise request.

Early exercise requests submitted after 4 PM ET will be queued for the next trading day. You can cancel the 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. Please contact us to request an exercise request after 4 PM ET. We will attempt to accommodate exercise requests until 5 PM ET on a best-efforts basis.

How to Confirm

Once you exercise an option, you’ll see a card displayed on your home screen that confirms your option was exercised and that the associated shares are pending. You’ll also receive an email and push notification before the next trading day confirming that your option was exercised or assigned (after we receive confirmation from the OCC).

How to submit a Do Not Exercise

If your option is out-of-the-money, Robinhood will take no action and the contract typically will expire. If you’d like to submit a Do Not Exercise request, you will need to send an email to our Options Support Team.

Note

Instructions for a Do Not Exercise need to be received by Robinhood before 5:00PM ET on the expiration date.

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Assignment

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 your short contract under the following circumstances, there are a few different things that could happen.

If you’re assigned on a covered call

The shares you have as collateral should be sold to settle the assignment. No additional action should be necessary.

If you’re assigned on a cash-secured put

The buying power you have as collateral will be used to purchase shares and settle the assignment. No additional action should be necessary.

If you’re assigned on the short leg (the call contract you sold) of a call spread

You have the obligation to sell shares of the underlying security at the strike price. In this case, the long leg (the call option you bought) should provide the collateral needed to cover the short leg.

If your long leg of a call spread is In the money

You can exercise the long leg of your spread, purchasing the shares you need to settle the assignment.

Example: You enter a XYZ call spread, so you buy one call contract of XYZ (the long leg) and sell one call contract of XYZ (the short leg).

You provide the shares necessary to settle the contract when you’re assigned, so your account is now short 100 shares of XYZ. To cover the short position in your account, you could exercise the XYZ call contract you bought to receive 100 shares of XYZ. Alternatively, you could also buy back the 100 short shares from the market followed by selling the long call in the open market to capture any time/extrinsic value remaining in the option.

If your long leg of a call spread is out of the money

You could sell the long leg of your spread, then separately purchase the shares you need to cover the assignment.

Example: You enter a XYZ call spread, so you buy one call contract of XYZ (the long leg) and sell one call contract of XYZ (the short leg).

When you’re assigned, you sell the shares necessary to settle the assignment and your account is now short 100 shares of XYZ. Because your long option is out of the money, exercising it would result in purchasing the underlying security at a price higher than what is currently offered in the marketplace. Instead, you could sell the call contract you own, and then separately buy 100 shares of XYZ to settle the short call assignment.

If you're assigned on the short leg of a put spread

If you’re assigned on the short leg (the put contract you sold) of your spread, you have the obligation to buy shares of the underlying security at the strike price.

If your long leg of a put spread is in the money

In this case, the long leg (the put contract you bought) should provide the collateral needed to cover the short leg. When you exercise the long leg of your spread, you can sell shares aiming to recover the funds you used to settle the short put assignment.

Example: You enter a XYZ put spread, so you buy one put contract of XYZ (the long leg) and sell one put contract of XYZ (the short leg).

When you’re assigned, you have to buy 100 shares of XYZ at the strike price of the assigned put. To help offset the assignment, you can exercise the long XYZ put contract you own to sell the 100 shares of XYZ you just purchased from the short assignment. Alternatively, you could also sell both the shares and the long put in the open market to capture any time/extrinsic value remaining in the long put.

If your long leg of a put spread is out of the money

You can sell the long leg of your spread, then separately sell the shares you need to cover the assignment.

Example: You enter an XYZ put spread, so you buy one put contract of XYZ (the long leg) and sell one put contract of XYZ (the short leg).

When your short leg is assigned, you buy 100 shares of XYZ, which may put your account in a deficit of funds. You can’t exercise the long leg to cover the deficit in your account since it’s out of the money. Instead, you can sell the put contract you own, then separately sell the 100 shares of XYZ you just received from the assignment to help cover the deficit in your account. Alternatively, you can continue to hold the long stock position if your account can support the purchase of the 100 shares.

Check out Advanced Options Strategies (Level 3) to learn more about calls, puts, and multi-leg options strategies.

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Unassigned Anticipated Assignment

On rare occasions, an in the money short option will not get assigned. This happens when the counterparty files a Do Not Exercise 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 will likely be long or short the stock the following trading day, potentially resulting in an account deficit or margin call.

All resulting short 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/loss on the position.

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Early Assignment

If you’re trading a multi-leg options strategy and you are assigned on your short position before expiration, there are a few things to keep in mind.

Decreased Buying Power

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 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.

Account Deficits

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.

Margin Calls

Early assignment may also result in margin call (assuming you have margin investing enabled on your account) 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.

Early Assignment and Exercise

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.

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In the Money and Out of the Money

These labels 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.

  • A call option is in the money if the underlying security's price is above the option’s strike price.
  • A call option is out of the money if the underlying security’s price is below the option’s strike price.
  • A put option is in the money if the underlying security’s price is below the option’s strike price.
  • A put option is out of the money if the underlying security’s price is above the option’s strike price.
Example

A $20 call option for XYZ stock would be in the money if XYZ stock was trading at $20.01 or greater. A $20 Put option for XYZ stock would be in the money if XYZ stock was trading at $19.99 or below.

Keep in mind that an option contract being in the money doesn’t necessarily mean that its owner will make a profit if they were to exercise it.

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Pending Shares

If Your Option is Exercised Before Expiration (Early-Exercise)

A few things can happen if your option is exercised early, depending on the time of day.

If the early exercise occurs between 9 AM ET and 4 PM ET, the associated shares should appear in your account immediately; you shouldn’t see any pending exercise in your account.

If the early exercise happens after 4 PM ET, it will be queued for the next trading day, and the associated shares will remain pending until the exercise has cleared.

If Your Long Option is Automatically Exercised or you are Assigned on a Short Option at Expiration

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.

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Finding Your Trade Details

On iOS
  1. Select the Account icon in the bottom-right corner of your screen
  2. Select History
  3. Choose the option you’re looking for (e.g. XYZ $1,200 Call 10/21 Exercise)
On Android
  1. Select the Account icon in the bottom-right corner of your screen
  2. Select the Menu icon in the upper-right corner of your screen
  3. Select Statements and History
  4. Choose the option you’re looking for (e.g. XYZ $1,200 Call 10/21 Exercise)
On Desktop
  1. Select Account in the upper-right corner of your screen
  2. Select History
  3. Scroll to find the option you’re looking for (e.g. XYZ $1,200 call 10/21 Exercise)
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Options Dividend Risk

Dividend risk is the risk that you’ll get assigned on any 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, 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 the regular-hours trading session the day before the ex-date.

Robinhood may take action in your account to close any positions that have dividend risk the day before an ex-dividend date. Generally, we’ll only take action if your account wouldn’t be able to cover the dividend that would be owed after an assignment. This is done on a best-efforts basis.

Example

XYZ will pay out the following dividend in the future:

  • Ex-Date: October 1, 2021
  • Record Date: October 3, 2021
  • Pay Date: October 31, 2021
  • Amount: $1.00

If you’re short, or you’ve sold 1 option call contract for XYZ expiring on or after October 1, there is a risk that you could be assigned.

For example, if you get assigned on September 30, you would have a short position of the 100 shares that were exercised by the counterparty (a person who bought and exercised the call option) when the market opens on October 1. In this case, you’ll have to deliver the underlying shares and pay the counterparty the dividend that is associated with these shares.

In this example, you’ll owe $1.00 x 100 shares = $100. We’ll 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 day before the ex-dividend date.

Note: The day before the ex-dividend, we’ll attempt to prevent customers from selling to open new short call options that are likely to be assigned that same night due to the underlying symbol ex-dividend date being the next trading day. This is only temporary, and you can open new short call positions on or after the ex-dividend date.

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Disclosures

Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Robinhood Financial does not guarantee favorable investment outcomes and there is always the potential of losing money when you invest in securities, or other financial products. Investors should consider their investment objectives and risks carefully before investing. To learn more about the risks associated with options, please read the Characteristics and Risks of Standardized Options before you begin trading options. Please also be aware of the risks listed in the following documents: Day Trading Risk Disclosure Statement and FINRA Investor Information. Examples contained in this article are for illustrative purposes only. Supporting documentation for any claims, if applicable, will be furnished upon request.

Reference No. 1889865
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