When an option is close to expiration and it’s in the money (ITM, meaning it has intrinsic value), exercise may occur. So, what exactly happens if an option is exercised?
👉 Let’s see how The Options Handbook explains exercise from both the buyer’s and the seller’s perspective —
▶ Buyer’s Perspective
For Call (or Put) buyers, exercising is all about buying (or selling) the underlying stock at the strike price, which does require some real capital or stock. If you plan to exercise, pay attention to these three points to avoid unwanted outcomes:
1. Cash or margin required 💰
Exercising a call requires real funds, 100 shares × the strike price. If you don't have sufficient funds in your account, your broker may close your position on your behalf.
2. Automatic Exercise ⚙️
Most brokers (including Tiger Brokers) will auto-exercise in-the-money options at expiration. If you don't want that or don't wish to take the shares or the margin hit, be sure to close the trade or opt out manually.
3. Forced liquidation 🏦
If you exercise but don't have enough funds or shares, your broker may sell part (or all) of your position the next day to cover the gap.
▶ Seller’s Perspective
As for sellers, there’s a chance you could be assigned, meaning you might need to deliver or purchase shares.
1.Call Seller 📈
If you sold a call and get assigned, you must deliver 100 shares at the strike, even if the market price is higher. If you don't already own the shares, you'll have to buy them at market price and deliver them at a loss.
2.Put Seller 📉
If you sold a put and get assigned, you'll have to buy the stock at the strike, even if it's worth much less "at the current market."
📒 For clear option basics and advanced strategies, check out The Options Handbook — your step-by-step guide to a complete knowledge framework. Now available in the Tiger Coin Center! 🐯
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>> Click here for the Simplified Chinese version <<
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