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When an in-the-money stock option expires does the broker always execute it or does its value become worthless if the owner doesn't execute it?

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It depends on the broker, each one's rules may vary. Your broker should be able to answer this question for how they handle such a situation. The broker I used would execute and immediately sell the stock if the option was 25 cents in the money at expiration. If they simply executed and news broke over the weekend (option expiration is always on Friday), the client could wake up Monday to a bad margin call, or worse.

  • You may want to update - the defaults have changed such that the OCC's standard practice is to exercise anything in the money by a penny or more - almost all brokers default to that, I believe. – Jaydles Apr 4 '14 at 21:45
  • Is that true? An exercise/sell to close, or wake up Monday with a 50/50 chance of being in the red? Any link or citation to share? – JoeTaxpayer Apr 4 '14 at 21:52
  • Yeah - I used to be on the OCC's advisory board, but I had to double check it was still true. Click the sixth "+" on this page to see the OCC's default. Now, a broker may choose their own to use for customers who don't provide instructions, but when I was in the industry, I don't think a single clearing member did that - it's a lot of hassle. – Jaydles Apr 4 '14 at 22:02

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