What does it mean when a contract expires?
Unlike a stock, each options contract has a set expiration date. This date figures heavily into the value of the contract itself, as it sets the timeframe for when you can choose to buy, sell, or exercise the contract. Once an options contract expires, the contract itself is worthless.
What happens when my contract is about to expire?
As the expiration date of your option contract nears, there are a few important things to keep in mind:
- You can’t open a position the day the contract expires. All options contracts are set to position closing status the day before expiration.
- We will automatically exercise any option in the money if your account has the required buying power.
- If you don’t have enough buying power to exercise your option, we’ll sell the contract in the market for you about 1 hour before it expires.
Once your contract expires, we’ll remove it from your home screen. You can view your expired contracts in your account history.
How do I exercise an option?
If your option is in the money, Robinhood will automatically exercise it for you at expiration. If you’d like to exercise early, send us a request and we’ll reach out as soon as possible.
What does it mean to be assigned?
When you’re assigned, you have the obligation to fulfill the terms of the contract. When you choose to sell to open an option, the buyer has the right to exercise her option. If the buyer exercises, you are assigned.
You can be assigned at any time between when you sell to open the option and when it expires, though you’ll typically be assigned on the day of the contract’s expiration if it’s in the money. This is why we’ll hold collateral to make sure you can cover your contract in case you’re assigned on it. The only way to avoid being assigned on an option you’ve sold is to buy back the position.
To learn more, see “Buying to Close” in “What’s An Option?”
How do I know if my option was exercised?
Once you exercise an option, you’ll see a card in your home screen letting you know that your option was exercised, and that your associated shares are pending. You’ll also receive an email and push notification before the next trading session, confirming that your option was exercised or assigned, once we receive confirmation from the Options Clearing Corporation.
What does “in the money” and “out of the money” mean?
These designations refer to the position of the underlying stock’s price relative to the strike price of the option.
- A call option is in the money if the underlying stock is above the option’s strike price.
- A put option is in the money if the underlying stock trades below the option’s strike price.
Here’s an example:
A $20 Call option for MEOW stock that you paid a $1 premium for would hit its breakeven point when MEOW reaches $21 in the market, and it would be in the money at $20.01. However, when MEOW stock is trading in the market at $19.99 or below, the call option would be out of the money because it’s trading below the strike price. If it’s trading right at the money at $20, it’s out of the money.
Keep in mind that an option contract being “in the money” doesn’t necessarily mean that its owner will make a profit if she were to exercise it. If you buy a $100 Call option at a $2 premium, your call is in the money when the stock trades at $101, though you wouldn’t break even until it hits $102.
What does it mean when my shares are pending?
Once your contract has been exercised or assigned, the associated shares will be held until we receive confirmation from the Options Clearing Corporation that all aspects of the exercise have cleared. You’ll be able to trade the shares before market open the day after expiration.
If something unusual occurs, like if you’re not assigned for an in-the-money call you sold, the pending state will be removed and your shares will be adjusted based on the updated information.
How much does it cost to exercise?
On Robinhood, it’s free!
How can Robinhood offer commission-free options trading?
We’re able to do this by building state-of-the-art technology to do things like review applications and manage risk, which allows us to cut a lot of overhead costs.
Where can I find the details of my exercise or assignment?
To see the details of your options contract at expiration:
- Tap the Account icon in the upper left corner of your screen
- Tap the “History” tab
- Tap the option you’re looking for (e.g. MEOW $1,200 Call 10/21 Exercise)
Please Note: Options transactions may involve a high degree of risk. To learn more about the risks associated with options trading, please review the options disclosure disclosure document entitled the Characteristics and Risks of Standardized Options available through Robinhood Financial LLC or The Options Clearing Corporation.