Each option contract has an expiration date, which is crucial as it limits the time you have to buy, sell, or exercise the option. Once an option expires, it will stop trading and either be exercised or expire worthless. Here are some key points to consider as the expiration date approaches:
- Out-of-the-Money (OTM) Options: If you hold an option and it is out-of-the-money, it will expire worthless, and you will lose the premium paid. If you are shorting the option contract that it will expire out of the money you will keep the full premium paid for the contract.
- In-the-Money (ITM) Options: If you hold an option and it is $0.01 or more in-the-money, it will likely be exercised, provided your account has the necessary buying power (for calls) or underlying shares (for puts). If you short the option then it will most likely get assigned.
- Lack of Buying Power or Shares: If you don’t have enough buying power or underlying shares to exercise your option, we will attempt to sell the contract in the market before the market closes on the expiration date.