Delivery, Exercise and Corporate Actions (2024)

POLICIES AND INSTRUCTIONS

Delivery, Exercise and Corporate Actions

Options Exercise

To exercise an option is to implement the right under which the holder of an option is entitled to buy (Call option) or sell (Put option) the underlying security. Options are exercised through the Option Exercise window (accessible from the Trade menu in the trading platform).

Please note: Both option exercises and lapses are irrevocable.

To avoid deliveries in expiring option and future option contracts, customers must roll forward or close out positions prior to the close of the last trading day.

Option Exercise & Option Lapse Requests (whether received through an Option Exercise window or by a ticket sent via Account Management/Message Center¹) may be submitted as follows:

For Equity Option Contracts Traded upon:		The broker must receive an Exercise Request by:
North America	US Options Exchanges	17:25 EST
North America	Montreal Exchange	16:30 EST
Europe	Euronext	17h50 CET
	Eurex (German and Swiss)	17h50 CET
	IDEM	17h50 CET
	LIFFE	17h50 CET
	MEFF	17h50 CET
	Sweden	17h50 CET
Asia Pacific	Australia	16:25 Australia/NSW
Asia Pacific	Japan	15:30 JST (send a ticket and call Customer Service)

Notes:

Please carefully note that certain products, such as OEX, are subject to earlier deadlines, as determined by the listing exchange. Exercise requests for all such products should be submitted well in advance of the exchange deadline, in order to ensure timely notification to the exchange by the broker.

For Future Option Contracts Traded upon:	Early Exercise	The broker must receive an Exercise Request by:
North America	NYMEX	N/A	15:30 EST
North America	GLOBEX/ECBOT	N/A	16:30 EST
Japan	TSEJ	Yes	15:30 JST (send a ticket and call Customer Service)

Expiration Exercise and Activity Notice

The broker does not support option exercises, assignments, deliveries or other effects of settlement that the broker determines may result in undue risk or operational risks/concerns. To protect against these scenarios as expiration nears, the broker will simulate the effect of expiration assuming plausible underlying price scenarios and evaluating the exposure of each account after settlement. Accounts determined to violate the broker's margin requirement due to the projected effect of settlement may be subject to a series of protective actions on the part of broker, including: liquidation of expiring positions on the last trade date; lapsing (non-exercise) of long in-the-money options; immediate liquidation of underlying positions subject to delivery on/after the option last trade date; liquidation of positions necessary to resolve a post-expiration margin deficit; and restricting the account to closing transactions.

In the event that you are holding a call spread (long and short calls in the sameunderlying) prior to an ex-dividend date in the underlying, and if you have notliquidated the spread or exercised the long call(s), IB reserves the right to: i)exercise some or all of the long call(s); and/or ii) liquidate (i.e., close out)some or all of the spreads -- if IB, in its sole discretion, anticipates that: a)the short call(s) is (are) likely to be assigned; and b) your account would nothave sufficient equity to satisfy the liability to pay the dividend or to satisfymargin requirements generally. In the event that IB exercises the long call(s) inthis scenario and you are not assigned on the short call(s), you could sufferlosses. Likewise, if IB liquidates some or all of your spread position you maysuffer losses or incur an investment result that was not your objective. In order to avoid this scenario, you should carefully review your option positions and your account equity prior to any ex-dividend date of the underlying and youshould manage your risk and your account accordingly.

For more detailed information, and examples, of delivery restrictions, please click here.

Expiration Option Exercise Instructions

Use the Option Exercise window to either: (i) exercise an option prior to expiration, or (ii) deliver "contrary intentions" to the clearinghouse for the options held; e.g., The Options Clearing Corporation ("OCC") for options traded on U.S. options exchanges. You must also use the TWS Option Exercise window to instruct the clearinghouse to exercise an option contrary to the clearinghouse's accepted policy on an options Expiration day (e.g., Expiration Friday for US options). If you do not use the TWS Option Exercise window to manually manipulate options, the clearinghouse will handle the exercise automatically in the manner described below:

OCC (United States)

For Options Traded On Us Exchanges And Cleared Through Options Clearing Corporation (OCC):
Stock options expiring in the current month that are $0.01 or more in the money will be automatically exercised by the OCC without the need for any explicit instructions from the broker. Index options expiring in the current month that are $.01 or more in the money will be automatically exercised by the OCC without the need for any explicit instructions from broker.
The broker must receive "contrary intentions" from you through the Option Exercise window if you want to: Avoid the exercise of a stock option or index option that is in the money by $0.01 or more. Exercise a stock option or index option that is in the money by LESS than $0.01. Exercise a stock option or index option that is out of the money.

For Options Traded On Us Exchanges And Cleared Through Options Clearing Corporation (OCC):

Stock options expiring in the current month that are $0.01 or more in the money will be automatically exercised by the OCC without the need for any explicit instructions from the broker.
Index options expiring in the current month that are $.01 or more in the money will be automatically exercised by the OCC without the need for any explicit instructions from broker.

The broker must receive "contrary intentions" from you through the Option Exercise window if you want to:

Avoid the exercise of a stock option or index option that is in the money by $0.01 or more.
Exercise a stock option or index option that is in the money by LESS than $0.01.
Exercise a stock option or index option that is out of the money.

CDCC (Canada)

For Options Traded On Canadian Exchanges And Cleared Through Canadian Derivatives Clearing Corporation (CDCC):
Stock options expiring in the current month that are 0.01 CAD or more in the money will be automatically exercised by the CDCC without the need for any explicit instructions from the customer. All index options expiring in the current month that are in the money by any amount will be automatically exercised by the CDCC without the need for any explicit instructions from the customer.
The CDCC must receive "contrary intentions" through the Option Exercise window if you want to: Exercise a stock option that is in the money by less than 0.01 CAD. Exercise a stock option or index option that is out of the money. Notify CDCC that you do not want to exercise a stock option that is 0.01 CAD or more in the money.

For Options Traded On Canadian Exchanges And Cleared Through Canadian Derivatives Clearing Corporation (CDCC):

Stock options expiring in the current month that are 0.01 CAD or more in the money will be automatically exercised by the CDCC without the need for any explicit instructions from the customer.
All index options expiring in the current month that are in the money by any amount will be automatically exercised by the CDCC without the need for any explicit instructions from the customer.

The CDCC must receive "contrary intentions" through the Option Exercise window if you want to:

Exercise a stock option that is in the money by less than 0.01 CAD.
Exercise a stock option or index option that is out of the money.
Notify CDCC that you do not want to exercise a stock option that is 0.01 CAD or more in the money.

ECC (Germany, Switzerland)

For Equity Options Traded On Eurex And Cleared Through Eurex Clearing Ag (ECC):
Stock options expiring in the current month that are more than 10 basis points in the money will be automatically exercised by the ECC without the need for any explicit instructions from the broker. Index options expiring in the current month that are more than 0.01 in the money will be automatically exercised by the ECC without the need for any explicit instructions from the broker.
The ECC must receive "contrary intentions" through the Option Exercise window if you want to: Exercise a stock option that is in the money by 10 basis points OR LESS. Exercise a stock option or index option that is out of the money.

For Equity Options Traded On Eurex And Cleared Through Eurex Clearing Ag (ECC):

Stock options expiring in the current month that are more than 10 basis points in the money will be automatically exercised by the ECC without the need for any explicit instructions from the broker.
Index options expiring in the current month that are more than 0.01 in the money will be automatically exercised by the ECC without the need for any explicit instructions from the broker.

The ECC must receive "contrary intentions" through the Option Exercise window if you want to:

Exercise a stock option that is in the money by 10 basis points OR LESS.
Exercise a stock option or index option that is out of the money.

LCH (United Kingdom)

For Equity Options Traded On Liffe And Cleared Through London Clearing House (LCH):
Stock options expiring in the current month that are more than 1 pence in the money will be automatically exercised by the LCH without the need for any explicit instructions from the broker. Index options expiring in the current month that are more than 1 pence in the money will be automatically exercised by the LCH without the need for any explicit instructions from the broker.
The LCH must receive "contrary intentions" through the Option Exercise window if you want to: Exercise a stock option that is in the money by 1 pence OR LESS. Exercise a stock option or index option that is out of the money.

For Equity Options Traded On Liffe And Cleared Through London Clearing House (LCH):

Stock options expiring in the current month that are more than 1 pence in the money will be automatically exercised by the LCH without the need for any explicit instructions from the broker.
Index options expiring in the current month that are more than 1 pence in the money will be automatically exercised by the LCH without the need for any explicit instructions from the broker.

The LCH must receive "contrary intentions" through the Option Exercise window if you want to:

Exercise a stock option that is in the money by 1 pence OR LESS.
Exercise a stock option or index option that is out of the money.

CNET (Belgium, France,Germany, Netherlands)

For Equity Options Traded On Euronext And Cleared Through Clearnet Sa (CNET):
Stock options expiring in the current month that are more than 0.01 in the money will be automatically exercised by CNET without the need for any explicit instructions from the broker or its customers. Index options expiring in the current month that are more than 0.01 in the money will be automatically exercised by the CNET without the need for any explicit instructions from the broker or its customers.

For Equity Options Traded On Euronext And Cleared Through Clearnet Sa (CNET):

Stock options expiring in the current month that are more than 0.01 in the money will be automatically exercised by CNET without the need for any explicit instructions from the broker or its customers.
Index options expiring in the current month that are more than 0.01 in the money will be automatically exercised by the CNET without the need for any explicit instructions from the broker or its customers.

SEOCH (Hong Kong)

For Equity Options Traded On Sehk And Cleared Through SEHK Options Clearing House (SEOCH):
Stock options expiring in the current month that are 1.5% or more in the money will be automatically exercised by the SEOCH without the need for any explicit instructions from the broker .
The SEOCH must receive "contrary intentions" through the Option Exercise window if you want to: Exercise a stock option that is in the money by less than 1.5%. Exercise a stock option that is out of the money.

For Equity Options Traded On Sehk And Cleared Through SEHK Options Clearing House (SEOCH):

Stock options expiring in the current month that are 1.5% or more in the money will be automatically exercised by the SEOCH without the need for any explicit instructions from the broker .

The SEOCH must receive "contrary intentions" through the Option Exercise window if you want to:

Exercise a stock option that is in the money by less than 1.5%.
Exercise a stock option that is out of the money.

Disclosures

"Contrary intentions" are handled on a best efforts basis.

In the event that an option exercise cannot be submitted via the trading platform, an option exercise request with all pertinent details (including option symbol, account number and exact quantity), should be created in a ticket via the Account Management window. In the Account Management window, click on "Inquiry/Problem Ticket". The ticket should include the words "Option Exercise Request" in the subject line. Please provide a contact number and clearly state in your ticket why the Option Exercise window was not available for use.

Delivery, Exercise and Corporate Actions (2024)

FAQs

What happens if you don't have enough money to exercise options? ›

If for any reason we can't sell your contract, and you don't have the necessary buying power or shares to exercise it, we may attempt to submit a Do Not Exercise request to the Options Clearing Corporation (OCC), and your contract will expire worthless.

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Is it better to exercise or sell a call option? ›

To illustrate this, consider two real-life scenarios: If you own a call option that's deep in the money and the stock pays a significant dividend, exercising to capture the dividend might be a smart move. But if the option is out of the money or still holds time value, selling could be a more profitable choice.

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Does Schwab automatically exercise options? ›

Expiring options will be automatically exercised if they're ITM by $0.01 or more as of the 3 p.m. CT price (for equity options) and 3:15 p.m. CT price (for options on indexes). In general, the option holder has until 4:30 p.m. CT on expiration day to exercise the contract.

Do all ITM options get exercised? ›

It's automatic, for the most part.

If an option is ITM by as little as $0.01 at expiration, it will automatically be exercised for the buyer and assigned to a seller. However, there's something called a do not exercise (DNE) request that a long option holder can submit if they want to abandon an option.

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What is an example of a call option exercise? ›

For example, a call option with a strike price of $50 would be in-the-money if the market price is $55. The investor who is exercising the call option would have the opportunity to purchase the stock at $50 and therefore earn $5. An in-the-money put option is when the exercise price is above the market price.

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What happens if I don't sell my options contract? ›

If an options contract position is not squared off before the expiration date, the trader can lose the total premium and any taxes and brokerage charges paid. You can utilize leverage to make purchases or sales during the trading day with an intraday (MIS/CO) order (up to 5 times the money in your account).

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What happens if I don't exercise my call option? ›

Options contracts are valid for a certain amount of time. So if the owner doesn't exercise their right to buy or sell within that period, the contract expires worthless, and the owner loses the right to buy or sell the underlying security at the strike price.

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When should you sell losing call options? ›

If the price of the underlying asset does not increase enough to offset the time decay the option will experience, then the value of the call option will decline. In this case, a trader can sell to close the long call option at a loss.

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When should I sell my call option? ›

Traders would sell a put option if they are bullish on the asset's price and sell a call option if they are bearish on the price. "Writing" refers to selling an option, and "naked" refers to strategies in which the underlying security is not owned and options are written against this phantom security position.

Should I exercise stock options immediately? ›

In many cases it can be advantageous to exercise your stock options early (provided you have the cash, and assuming you believe in the company given you accepted a job there). The first benefit of exercising early is that you will likely have zero (or very little) tax liability at the time of exercise.

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Does exercising stock options count as income? ›

You have taxable income or deductible loss when you sell the stock you bought by exercising the option. You generally treat this amount as a capital gain or loss. However, if you don't meet special holding period requirements, you'll have to treat income from the sale as ordinary income.

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Should I exercise all my stock options? ›

Deciding when to exercise stock options should be largely dictated by your vesting schedule. Vesting criteria restrict your ability to cash in on your options until you meet certain thresholds, which are typically based on your tenure at a company or performance level.

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Why would you not exercise options? ›

There is generally no exercise or assignment activity on options that expire out-of-the-money. Owners usually let them expire with no value. Although this is not always the case as post-market underlying moves may lead to out-of-the-money options being exercised and in-the-money options not being exercised.

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What percent of options get exercised? ›

While an option seller will always have some level of uncertainty, being assigned may be a somewhat predictable event. Only about 7% of options positions are typically exercised, but that does not imply that investors can expect to be assigned on only 7% of their short positions.

Why is my call option losing money when the stock is going up? ›

The situation is reversed when the strike price exceeds the stock price — a call is then considered out-of-the-money (OTM). An at-the-money option (ATM) is one whose strike price equals (or nearly equals) the stock price. Your call option may be losing money because the stock price is not above the strike price.

Do you have to have the money to exercise an option? ›

You have to use your own money: When exercising options early, you can't sell some of your stock to pay for your shares. There's no guarantee that your shares will increase in value: By waiting for the usual one-year vesting cliff, you may get a better idea of whether you should purchase your options or not.

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Can you lose more money than you have with options? ›

When you purchase an option, your upside can be unlimited, and the most you can lose is the cost of the options premium. Depending on the options strategy employed, a trader can profit from any market conditions. Options spreads tend to cap both potential profits as well as losses.

What happens if my call option expires in-the-money? ›

Call options below the stock price are ITM, and call options above the stock price are OTM. If an option expires in-the-money, it will be automatically converted to long or short shares of stock in the associated underlying. Long calls are converted to 100 long shares of stock at the strike price.

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Can you owe money trading options? ›

Options strategies that involve selling options contracts may lead to significant losses, and the use of margin may amplify those losses. Some of these strategies may expose you to losses that exceed your initial investment amount. Therefore, you will owe money to your broker in addition to the investment loss.

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