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I know that shorting a call option that ends up in-the-money makes you obligated to buy 100 stock shares for the buyer and that the brokerage firm does it automatically for you. My question is, will you have an open position of -100 shares of that stock afterwards? Or will the brokerage firm also buy back 100 shares to close that new position? Thank you :-)

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Selling a call obligates you to sell the underlying at the terms of the contract. If the call is in-the-money at expiration, the OCC will automatically exercise it and your broker will receive notice of assignment Your broker will then sell 100 shares on your behalf. If you do not own the shares then you will be short the shares, eg. -100 shares.

As long as you have approval for short selling as well as sufficient funds to meet the margin requirement then your broker will take no subsequent action. If you do not, the broker will buy to close the short position and that can be at an inferior price (it could occur during after hours when B/A spreads are wide). In addition, your account could be restricted.

  • Can I make it that my broker buys back 100 shares automatically to close the new position? – RaniFaris Feb 19 at 18:54
  • Why subject yourself to the additional B/A slippage and commissions from additional transactions as well as market risk (share price moves before you can buy to cover the shares)? Buy to close the call before expiration. – Bob Baerker Feb 19 at 18:58

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