Option Expiration, Exercise, Assignment, and Potential Risks
Option expiration Option expiration refers to the date on which an options contract becomes void. After this date, the right to exercise the contract no longer exists, and any remaining value is either realized or lost depending on the position. Options can expire on any day of the week. Most options now have weekly Friday expirations, although some have monthly and quarterly expirations. In some cases, options with Monday and Wednesday expirations have been introduced, and a few symbols now feature daily expirations.
Automatic exercise on expiration day If you hold a long option that is $0.01 or more in-the-money through expiration day, the OCC (Options Clearing Corporation) will automatically exercise it using the official closing price. For call options, this means being $0.01 above the strike price, and for put options, $0.01 or below the strike price. This automatic exercise will result in your account buying or selling the underlying asset at the strike price. If you prefer to prevent automatic exercise, you must submit a Do-Not-Exercise instruction via the in-app Help Center or by speaking with a broker by 4:30 PM EST (market close).
Please Note: Deliverables may change. Short options, assignment & delivery
Assignment When an options contract is exercised, the Options Clearing Corporation (OCC) facilitates assignment using a randomized allocation process. First, the OCC randomly selects a clearing firm that holds open short positions in that specific option series. Once selected, the responsibility to fulfill the assignment shifts to that clearing firm.
From there, the clearing firm uses its own internal allocation method — typically random selection, first-in-first-out (FIFO), or pro-rata — to determine which specific client account(s) will be assigned. This means that as a client, you're not assigned directly by the OCC, but rather through your broker-dealer or clearing firm based on their internal policy.
This multi-layered process ensures fairness and regulatory compliance across the entire options market, while also making assignment outcomes unpredictable at the individual account level.
Delivery Delivery is the process of fulfilling the terms of a written option contract upon receiving an assignment notification. For a short equity call, the writer must deliver the stock and will receive cash in exchange. For a short equity put, the writer will pay cash and receive the stock.
Please Note: Deliverables may change. Out-of-the-money short options Your short option could be assigned even if it is out-of-the-money or at-the-money. In some situations, it may be advantageous for an out-of-the-money option to be assigned, such as due to extended-hour market activity or for dividend claims. Therefore, being out-of-the-money does not guarantee that assignment will not occur. The only way to ensure you are not assigned is by closing the short position prior market close.
In-the-money short options at expiration In-the-money short options are not guaranteed to be assigned. The holder of the long option might decide not to exercise it by submitting a 'Do-Not-Exercise' instruction. Additionally, market activity during extended sessions could make exercising the option uneconomical. Therefore, even if your short option is in-the-money, there is no certainty that you will be assigned. Expiration & account equity You are responsible for reviewing your expiring option positions and ensuring your account has enough equity to support an exercise or assignment. It is important to understand the risks and maintain sufficient equity to cover a short option assignment. Even if your option is out-of-the-money, assignment is still possible. Be aware of the deliverables of your option and the responsibilities involved in the exercise/assignment process. The resulting position may incur margin charges, hard-to-borrow fees, and other market risks.
Webull auto-liquidation & expiration risk Webull imposes cutoff times for opening options positions on the day they expire. Single-leg options cannot be opened after 3:25 PM ET, and multi-leg strategies cannot be opened after 3:00 PM ET. Any orders submitted beyond these times will be automatically rejected or canceled.
Failure to actively monitor your options positions going into expiration may result in auto-liquidation, do-not-exercise instructions, exercise, or assignment, depending on whether your account has sufficient equity or margin to support the position
Webull HK reserves the right to close any options positions that pose a risk if exercised or assigned. However, Webull is not obligated to take action on your behalf. It remains your responsibility to manage your positions and understand the potential risks, especially around expiration.
Spreads & expiration risks Spreads are often considered 'defined-risk' trades, referring to the maximum theoretical loss or gain at the time of entry. However, the term "theoretical" is key, as spreads can pose additional risks at expiration.
Spread Expiration Risk occurs when an exercise or assignment creates an unhedged underlying position, potentially altering the risk profile and margin requirement. Here’s an example to illustrate:
A trader sets up a 10-lot short vertical call spread on XYZ with a $10.00 width:
Sell 10 XYZ Jun 16 $100 Calls
Buy 10 XYZ Jun 16 $110 Calls
The initial margin requirement is $10,000 ($10 wide x 1000 shares).
Scenario 1: XYZ closes at $105 on expiration day, between the strikes. The $100 call is in-the-money, while the $110 call expires worthless. The trade's risk shifts from the defined $10,000 to a potential $100,000 assignment through expiration, known as ‘pin-risk.’ This occurs when the underlying price pins between the strikes and requires careful management.
Scenario 2: XYZ closes at $99, both options out-of-the-money. If XYZ later rises to $103 in extended trading, the $100 call might be assigned. For instance, if the trader is assigned on 8 of the 10 contracts on Monday, they would have to buy 800 shares at $100 each. If XYZ then rises to $115, the trader could incur a loss of $12,000, exceeding the initial theoretical max loss of $10,000. Additional fees might apply if XYZ is a hard-to-borrow security.
It’s crucial to understand and manage all risks associated with spreads.
After expiration If the exercise or assignment leads to a Reg T or Money Due Call, you can avoid restrictions or penalties by covering the call on the day following expiration (T+1).
Exercise requests are processed overnight, and your position and balances will be updated on the next business day.
Option trading entails significant risk and is not appropriate for all investors. Option investors can rapidly lose the entire value of their investment in a short period of time and incur permanent loss by expiration date. You need to complete an options trading application and get approval on eligible accounts. Please read the Characteristics and Risks of Standardized Options and Option Spread Risk Disclosure before trading options.
Option Spread Risk Disclosure Before using our spread order entry screen, options spread traders must understand the additional risks associated with this type of trading.
While it is generally accepted that spread trading may reduce the risk of loss of trading of the outright purchase of a standardized option contract, an investor/trader MUST understand that the risk reduction can lead to other risks.
1. Early exercise and assignment can create risk and loss. Spreads are subject to early exercise or assignment that can remove the very protection that the investor/trader sought. This can lead to margin calls and greater losses than anticipated when the trade was entered. Webull HK reserves the right to close an option position that may be subject to exercise or assignment (in- or out-of-the money), depending upon account equity, buying power, and market conditions.
2. Execution of spread orders is "not held" and discretionary. Spreads are not standardized contracts as are exchanged traded put and calls. Spreads are the combination of standardized put and call contracts. There is NO spread market in securities that are subject such benchmarks such as "time and sales" or "NBBO" (National Best Bid/Offer) and therefore the "market" cannot be "held" to a price.
3. Spreads are executed differently than "legged" orders. Spreads are used by strategists as examples of risk protection, profit enhancement and as a basis for results and return on investments. However, these strategies assume that the trade can actually be executed as a spread when market forces may and can make the actual execution impossible. Spreads are a bona-fide trades and not "legged" or "paired" of individual separate trades. For example: options prices on cross-markets are misleading for the spread trader. An option may be offered on one exchange and bid on another exchange that can lead the trader to believe that their spread trade should be filled, when, in fact, the bids and offers must be on the SAME exchange. As all bona-fide spreads are routed and executed on "one" exchange.
4. Spreads are entered on a single exchange and are acted upon by a market maker. Spreads are executed at the discretion of a market maker and when cancelled or filled require that the market maker take manual action and require manual reporting at times. Delays for reporting of fills and cancels may create additional risks in fast or changing markets. Spreads entered through Webull.
HK spread order entry screen are ALWAYS entered as spreads and as such are subject to the market risk and conditions as explained above. | 
