Options: Exercise and Assignment

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How do I exercise an option contract prior to expiration?

If you trade options, it's imperative that you understand the basics of exercise and assignment. You don't need to know all the theoretical details, but you must be prepared for it, especially if you're short options where you don't control the exercise feature. Learn more in the "Exercise and Assignment, Early or Otherwise" section of the Option School section of our website. Remember that clients are required to submit an electronic exercise advice by 3:20 pm CST.

How do I know that I have been assigned on a short option?

If you are short any options that are in the money you should check your account daily to see if you have been assigned. In the case of early assignment (assignment prior to expiration) we will make every attempt to reach you prior to the opening of the market on the day we receive the exercise notice on your behalf, but you still need to maintain the habit of checking your account personally.
At expiration, any equity option that is .01 of a point or more in the money will be automatically assigned. In addition, in the money cash-settled options are exercised on the holder's behalf. There is too much volume on expiration to contact each person individually, so you need to check your accounts on the TOS system on Monday morning after expiration to see where you stand. In any case, our clearing firm will send you a confirmation showing your purchase or sale of stock on an exercise.

Please explain automatic exercise at expiration.

Equity options that are in-the-money by .01 of a point or more by the close of trading on the Friday before expiration are automatically exercised. Clients who wish to exercise options that are in-the-money by less than .01 of a point must notify us electronically via the exercise page by 3:20 pm CST.