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:
- We won’t allow you to open a position the day the contract expires. All options contracts are set to position closing status the day before expiration.
- If there is a strong likelihood of your contract moving into the money, we’ll try to sell it.
- If you don’t have enough buying power to exercise your option, we’ll attempt to sell the contract in the market for you about 1 hour before it expires.
If your option is in the money, Robinhood will automatically exercise it for you at expiration unless:
- You don’t have sufficient buying power
- Doing so would result in a short stock position
If you have a long call about to expire:
- If the contract is at risk or in the money, we’ll assess your account to see if you have enough cash to buy the shares.
- If you don’t have enough cash to buy the shares, we’ll attempt to sell the option. If you have 10 contracts, but enough cash to only buy 500 shares, we’ll 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 at risk or in the money, we’ll assess your account to see if you have enough shares to sell.
- If you don’t have enough shares, we’ll attempt to sell the option. If you have 10 contracts and 500 shares, we’ll attempt to sell 5 contracts and allow the remaining 5 contracts be exercised for a total of 500 shares.
If you have a spread about to expire:
- If both legs are in the money, or not at risk of being in the money, we’ll take no action.
- If one leg is at risk or in the money, we’ll either sell the spread or match the option with another form of collateral (like cash or stocks) and let you exercise it.
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.