Understanding what happens when options expire is crucial for options traders.
Expiration
Options have an expiration date. After this date, the contract is no longer valid.
- In the money (ITM): Options that would be profitable to exercise
- Out of the money (OTM): Options that would not be profitable to exercise
- At the money (ATM): Options where the strike price equals the stock price
What happens at expiration?
If you own options:
- ITM options are typically automatically exercised
- OTM options expire worthless
- You lose the premium you paid for OTM options
If you sold options:
- ITM options may be assigned (you'll need to fulfill the contract)
- OTM options expire and you keep the premium you received
Exercise
Exercising a call option means buying 100 shares at the strike price. Exercising a put option means selling 100 shares at the strike price.
To exercise an option before expiration, contact Aries support.
Assignment
If you sold options, you may be assigned. This means the option buyer has exercised, and you must fulfill your obligation:
- Assigned on a sold call: You must sell 100 shares at the strike price
- Assigned on a sold put: You must buy 100 shares at the strike price
Keep in mind
Assignment can happen at any time for American-style options, not just at expiration. Make sure you have sufficient funds or shares to cover potential assignment.