Understanding what happens at expiration — and when you can be assigned early — keeps you out of nasty surprises, especially when you are selling options. The rules are simple once you know them, but ignoring them is how new traders get caught.
Open the Covered Call calculator →Options that are in the money at expiration are automatically exercised; options that are out of the money expire worthless. A call buyer receives 100 shares; a put buyer delivers 100 shares, both at the strike price.
If you are short an in-the-money option at expiration, you are assigned — you must fulfil the other side of the contract, buying or delivering the shares.
American-style options can be assigned at any time before expiration, not just at the end. It is most likely on short calls right before an ex-dividend date, and on options that are deep in the money with little time value left.
Index options such as SPX are European-style and cash-settled, so they cannot be assigned early — one reason many traders prefer them for spreads.
Close or roll short in-the-money options before expiration if you do not want the shares or the obligation. Do not leave them to chance over the weekend.
Be aware of dividend dates on short calls, and remember that pin risk — the stock closing right at your strike — can leave you uncertain whether you will be assigned.
Almost always — clearing firms auto-exercise options that are even a penny in the money, so assume assignment if you stay short and ITM.
It is rare but possible if the holder exercises for non-obvious reasons; generally OTM options expire worthless.
The uncertainty when a stock closes right at your strike, so you do not know whether your option will be exercised — manage the position before the close to avoid it.
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