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On the expiration date, if the option is out-of-the-money, the option expired without the option being exercised. If the option is in-the-money, the option will be automatically exercised. The exercise will be accomplished by physical delivery.
For example, if you hold an AAPL 170314 140.00C, which is in-the-money on 3/14/17. The option contract will disappear from your account after the market closes, and your account will be charged $14,000 but added 100 AAPL shares.
When exercising options, please ensure that you have sufficient buying power in your account. Otherwise, Airstar bank reserves the right to close in-the-money / nearly in-the-money options and not to exercise in-the-money options due to its own risk control. If a client's account becomes "dangerous" due to various reasons after the exercise, Airstar bank reserves the right to close positions for its own risk control. During the trading hours on the expiration date, the system will continuously monitor the client's account position. The margin required for the exercise will be calculated at unspecified times before the market closes (generally 1 hours before closing), and the buying power for 0DTE (zero days to expiration) options will be reduced. If the account becomes "Dangerous", clients can choose to close out the option and Airstar bank also reserves the right to close out the option at any time. For example, you have 3 in-the-money options on AAPL, of which the total market value is $3. The current price of AAPL is $200. And you need to have at least $29997 in your account to exercise the options.
This is calculated as follows.
200 (AAPL Market Price) * 3 (Number of Contracts) * 100 (Contract Size) * 50% (Initial Margin Ratio) - $3 = $29997.
Otherwise, Airstar bank has the right to close the 3 in-the-money options on the expiry date or not to exercise the option.
If you need to early exercise your long option or option lapse, please contact the dealing team at operation.wm@airstarbank.com. Please include the details below in your e-mail:
Option code:
Number of Option Contract:
Action: Early exercise / Option lapse
Please note:
1) Instructions must be received before the close of US regular trading session at 4:00PM EST.
2) Airstar Bank will proceed after confirming the investor's intention to exercise and the purchasing power of the account required for the exercise.
3) A lapse request takes effect after the market closes on the expiration date. If you submit a lapse request and do not close the options position by market close on the expiration date, the options you hold will expire worthless and will not be exercised automatically, regardless of whether they are in the money. In that case, you shall be solely responsible for any potential losses incurred.
4) When the short leg of your vertical spread strategy is early exercised by the option buyer, you may choose to early exercise your remaining long option leg, as you are the option holder for that position. Once your short option leg is early exercised, a corresponding equity position is generated. If you wish to avoid topping up your deposit or facing forced liquidation, you can early exercise the long option leg, so that on the next trading day, the equity position from the long option leg will offset the equity position from the short option leg.
When you short an option, your counterparty is longing an option. Your counterparty has the right to exercise the option and you have the obligation to be assigned to exercise the option.
When an options assignment occurs, you must sell or buy stock to your counterparty at the price agreed upon on the option. The process is called an assignment.
Generally, in-the-money options will be exercised on the expiration date. If you hold an in-the-money short option on the expiration date, it is subject to assignment. In practice, the short option holder may not be assigned (the buyer abandons the exercise) or assigned out-of-the-money (the buyer initiates the exercise) because the buyer has the discretion to decide whether to exercise the option due to its own trading strategy.
For example, Trader A short an AAPL 170314 140.00C to Trader B. In this transaction, Trader A is a short call party and Trader B is a long call party. When Trader B exercises, Trader A is assigned to sell 100 shares of AAPL at $140 to Trader B.
