If options gives you the RIGHT but not the OBLIGATION to exercise them, then why are they being forcefully exercised if they expired in the money?

External question — Personal Finance Stack Exchange Author: frosty Original post: https://money.stackexchange.com/questions/134739 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Now, I know what you're thinking. If it's in the money, isn't it good that your broker automatically exercise the options for you on expiration date? Well, yes and no. If you somehow managed to miss the expiration date, then that means something likely came up that made it so you weren't able to login and close the position before the expiration date. Maybe an emergency came up, and you weren't able to access internet for a while. Maybe you got into an accident and were in the hospital for some time. Whatever the reason, you weren't able to access your online broker during those time. Now let's say you have a call option at a strike price of $1.00, and prices were currently trading at $1.50 when your call option expired, which means your call option expired in the money. So your online broker exercised it at the expiration date, and now you own 100 shares of that stock for only $1.00 each. Now, if you were to immediately go online, you would be able to sell those shares for $1.50 each, and made a profit. But in this case, since you weren't able to access the internet for who knows how long, for whatever reason it may be, when you came back online, you find that the stock has dropped to a whooping $0.50. You just lost 50% of the exercised contract for no reason because of the forced exercise. Plus the cost of the contract itself. And for what? Now let's talk about in the money put options. Now, I'm not completely sure how put options are handled in this case, but if they follow the same format as the call option then it would go something like this: You have a put option at a strike price of $1.00, and prices were currently trading at $0.50 when your put option expired, which means your put option expired in the money. So your online broker exercised it at the expiration date, so now you own 100 shorted shares of that stock for $1.00. Now, if you were to immediately go online, you would be able to cover those shorted shares for only $0.50 each, and made a profit. But in this case, since you weren't able to access the internet for who knows how long, for whatever reason it may be, when you came back online, you find that the stock has rise to a whooping $1.50, maybe $3.00, maybe $6.00, point is, there's no limit to how high a stock can go UP. Maybe you just lost all of your investment, and STILL own your online broker money, because of the forced exercise. Now what?

External answer — Personal Finance Stack Exchange Author: Bob Baerker Original post: https://money.stackexchange.com/a/134754 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Regarding automatic exercise, brokers do not automatically exercise the options. In the US, if an option is one cent or more in-the-money (ITM) at expiration, the Option Clearing Corp (OCC) will automatically exercise options whether they are long or short. This is called Exercise by Exception. For equity options, you will end up with a long or short position in the underlying (index options are cash settled). If you are long the option, you can designate to the OCC via your broker that it is not auto exercised at expiration. This would make sense if it is ITM by pennies and your commission and/or fees to close the position exceeds the ITM amount. Per Investopedia : Automatic exercise is a procedure implemented to protect an option holder where the Option Clearing Corporation (OCC) will automatically exercise an "in the money" option for the holder, typically at an option's expiration date and time. Regarding your concerns about being unable to access your account: Maybe an emergency came up, and you weren't able to access internet for a while. Maybe you got into an accident and were in the hospital for some time. Whatever the reason, you weren't able to access your online broker during those time. Suppose you bought 1,000 shares of AAPL on Wednesday for $127 and later that day you were in a car accident and needed surgery. Is it your broker's responsibility to determine at what price you should sell your shares for a tidy profit? I think that you know the answer to that. NO. It is your responsibility to manage your positions and if you were concerned about the risk, you could place a stop limit order to limit the loss as well as a trailing stop to lock in profit. Such orders could be adjusted every day. I know first hand what's involved here. In early November I had nearly 200 long and short options in my trading account for various near term weekly expirations. These were mostly long and short collars hedging some sizable positions in 9 large cap stocks. Shortly thereafter I contracted a bad case of Covid. After two weeks, I reached respiratory distress. I went to the emergency room fully expecting to be hospitalized. Before I went, I spent a morning closing out all of my positions because of the potential risk of an inability to continue to manage my positions if I got worse (my protective options would expire and I would then have full directional risk). I was about as sick as one could get without needing hospitalization (a silver lining?). So, been there, done that and my advice to you is to work out a contingency plan in advance for possibly being indisposed.

External answer — Personal Finance Stack Exchange Author: SquishyRhode Original post: https://money.stackexchange.com/a/134761 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. You have a right but not a duty to vote in the 2020 presidential election. That doesn't mean you can exercise that right on November 4th. Inaction is still an action, exercised by your choice alone. Don't you agree to the terms when you buy your options? When you open an account with your broker? Imagine your question being asked in any other economic dynamic: I had every intent to return my VHS tape to Blockbuster on time, but a broken down car prevented me from doing so. I shouldn't have to suffer the fine. Kind of sounds stupid when put that way, doesn't it? Its all about personal responsibility. And, dare I say, the inherent risks in the market you choose to operate in. We all occasionally regret buying too soon or too late, selling too soon or too late. It goes with the territory. Someone has to suffer the loss, don't they? Someone has to eat the difference. Why not the person who chose to take on the risk? Who else? You're essentially complaining about consequences when two aspects of your personal life, poorly coordinated by you, collide and have undesirable results. Ad hoc rationalizations and hindsight-bias, posterior risk aversion isn't a get-out-of-jail-free card, despite what leftist academia tells you. Those are my genuine thoughts on your "hypothetical" scenario.

External answer — Personal Finance Stack Exchange Author: Sophie Swett Original post: https://money.stackexchange.com/a/134770 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Options are not forcibly exercised when they expire in the money. If you own an option, and you don't want your broker to exercise it even if it expires your money, you can instruct your broker not to. Source: The Options Industry Council FAQ, Options Exercise , question 11.3.5.5: The option holder can always submit instructions to their broker regarding whether to exercise or not to exercise. A customer may decide not to exercise an in-the-money option in some cases.