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For most brokers, how naked put works at the expiration?

  1. Buy the option at that price, if ITM.
  2. Buy the underlying stocks if having enough cash in the account.

For 2, does it depend on if the option buyer (will be market maker at expiration?) exercise the option, or all the options will be set in one default setting?

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Your question isn't clear. If you have sold a naked put, you would buy it to close to end the contract not Sell the option at that price, if ITM.

There are 3 possibilities at expiration.

1) The put is out-of-the-money and it expires worthless 2) It is in-the-money and you buy it to close from either another trader or the market maker 3) It is ITM and you do nothing and it is automatically assigned by the OCC

Why automatic? If an option is one cent or more ITM at expiration, the Option Clearing Corp (OCC) will automatically exercise all options whether they are long or short. This is called Exercise by Exception. For equity options, you will end up with a position in the underlying (index options are cash settled).

If you are long the option, you can designate to the OCC via your broker that your options are not auto exercised at expiration. This would make sense if they are ITM by pennies and your commission to close the position exceeds the ITM amount.

If short the ITM option, you need to take action if you don't want assignment and a position in the underlying.

  • Thanks for your correction! So it mostly depends on my setting of the broker, right? – I Wonder Jun 2 at 23:04
  • I don't know what setting of the broker means. You designate to the OCC via your broker if you do not want long ITM options exercised. For short ITM positions at expiration, you close them or the OCC assigns you. – Bob Baerker Jun 2 at 23:09
  • If I have the same number of long put options at the same expiration date, will I be assigned? – I Wonder Jun 2 at 23:36
  • All options ITM at expiration will be assigned (short) and exercised (long). If both are ITM and for the same underlying, they'll offset, assuming both are standard 100 share contracts. – Bob Baerker Jun 3 at 0:38

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