How are stock options exercised and settled?

Most exercises are automatically carried out based on the closing settlement price on the contract expiration date.

As option buyers, if an option is out-of-the-money on the expiration date, the expired option will have no value and exercise will not take place. If the price value of an option is equal to or higher than $0.01, the option will be automatically exercised, which will be completed in the form of a physical delivery of the underlying shares.

As the option seller, when an option is exercised by the buyer, the option clearing house will randomly match the open short position with the exercised option. If your account is assigned, you must either deliver the underlying stock (in case of a call option) or buy the underlying stock (in case of a put option).

Generally speaking, in-the-money options are exercised when they expire. If you are short selling an in-the-money option on the expiration date, you will most likely be assigned. The buyer may also choose to waive the exercise rights or exercise the option earlier regardless of the actual price value.

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