If my put option reaches expiration on etrade and I don't log in to the site will it automatically exercise if it's in the money or be a total loss?
"There are a number of choices: I prefer Dilip's response ""Have you tried asking etrade?"" No offense, but questions about how a particular broker handles certain situations are best asked of the broker.  Last - one should never enter into any trade (especially options trades) without understanding the process in advance. I hope you are asking this before trading." I have held an in the money long position on an option into expiration, on etrade, and nothing happened.   (Scalping expiring options - high risk) The option expired a penny or two ITM, and was not worth exercising, nor did I have the purchasing power to exercise it. (AAPL) From etrade's website: Here are a few things to keep in mind about exercises and assignments: Equity options $0.01 or more in the money will be automatically   exercised for you unless you instruct us not to exercise them. For   example, a September $25 call will be automatically exercised if the   underlying security's closing price is $25.01 or higher at expiration.   If the closing price is below $25.01, you would need to call an   E*TRADE Securities broker at 1-800-ETRADE-1 with specific instructions   for exercising the option. You would also need to call an E*TRADE   Securities broker if the closing price is higher than $25.01 at   expiration and you do not wish to exercise the call option. Index   options $0.01 or more in the money will be automatically exercised for   you unless you instruct us not to exercise them. Options that are out   of the money will expire worthless. You may request to exercise   American style options anytime prior to expiration. A request not to   exercise options may be made only on the last trading day prior to   expiration. If you'd like to exercise options or submit   do-not-exercise instructions, call an E*TRADE Securities broker at   1-800-ETRADE-1. You won't be charged our normal fee for   broker-assisted trades, but the regular options commission will apply.   Requests are processed on a best-efforts basis.  When equity options are exercised or assigned, you'll receive a Smart   Alert message letting you know. You can also check View Orders to see   which stock you bought or sold, the number of shares, and the strike   price.  Notes: If you do not have sufficient purchasing power in your account   to accept the assignment or exercise, your expiring options positions   may be closed, without notification, on the last trading day for the   specific options series. Additionally, if your expiring position is   not closed and you do not have sufficient purchasing power, E*TRADE   Securities may submit do-not-exercise instructions without   notification. Find out more about options expiration dates.
You haven't said why you think you will gain at $41, but the graph never lies. Take it one piece at a time: At $41, your stock will lose a big chunk of value.  Your short calls will expire.  Your puts will gain a bit of value.  The stock's loss outweighs the option gains. "For personal investing, and speculative/ highly risky securities (""wasting assets"", which is exactly what options are), it is better to think in terms of sunk costs. Don't chase this trade, trying to make your money back. You should minimize your loss. Unwind the position now, while there is still some remaining value in those call options, and take a short-term loss. Or, you could try this.  Let's say you own an exchange traded call option on a listed stock (very general case). I don't know how much time remains before the option's expiration date. Be that as it may, I could suggest this to effect a ""recovery"".  You'll be long the call and short the stock. This is called a delta hedge, as you would be delta trading the stock. Delta refers to short-term price volatility.  In other words, you'll short a single large block of the stock, then buy shares, in small increments, whenever the market drops slightly, on an intra-day basis. When the market price of the stock rises incrementally, you'll sell a few shares. Back and forth, in response to short-term market price moves, while maintaining a static ""hedge ratio"". As your original call option gets closer to maturity, roll it over into the next available contract, either one-month, or preferably three-month, time to expiration. If you don't want to, or can't, borrow the underlying stock to short, you could do a synthetic short. A synthetic short is a combination of a long put and a short call, whose pay-off replicates the short stock payoff.  I personally would never purchase an unhedged option or warrant. But since that is what you own right now, you have two choices: Get out, or dig in deeper, with the realization that you are doing a lot of work just to trade your way back to a net zero P&L.  *While you can make a profit using this sort of strategy, I'm not certain if that is within the scope of the money.stachexchange.com website." Options granted by an employer to an employee are generally different that the standardized options that are traded on public stock option exchanges.  They may or may not have somewhat comparable terms, but generally the terms are fairly different. As a holder of an expiring employee option, you can only choose to exercise it by paying the specified price and receiving the shares, or not.  It is common that the exercise system will allow you to exercise all the shares and simultaneously sell enough of the acquired shares to cover the option cost of all the shares, thus leaving you owning some of the stock without having to spend any cash.  You will owe taxes on the gain on exercise, regardless of what you do with the stock. If you want to buy publicly-traded options, you should consider that completely separately from your employer options other than thinking about how much exposure you have to your company situation.  It is very common for employees to be imprudently overexposed to their company's stock (through direct ownership or options). Yes When exercising a stock option you will be buying the stock at the strike price so you will be putting up your money, if you lose that money you can declare it as a loss like any other transaction. So if the stock is worth $1 and you have 10 options with a strike at $0.50 you will spend $500 when you exercise your options. If you hold those shares and the company is then worth $0 you lost $500. I have not verified my answer so this is solely from my understanding of accounting and finance. Please verify with your accountant to be sure. This depends on a combination of factors: What are you charged (call it margin interest) to hold the position? How does this reduce your buying power and what are the opportunity costs? What are the transaction costs alternative ways to close the position? What are your risks (exposure while legging out) for alternative ways to close? Finally, where is the asset closing relative to the strike? Generally, If asset price is below the put strike then the call expires worthless and you need to exercise the put. If asset is above the call strike then put expires worthless and you'll likely get assigned.  Given this framework:  If margin interest is eating up your profit faster than you're earning theta (a convenient way to represent the time value) then you have some urgency and you need to exit that position before expiry. I would not exit the stock until the call is covered. Keep minimal risk at all times. If you are limited by the position's impact on your buying power and probable value of available opportunities is greater than the time decay you're earning then once again, you have some urgency about closing instead of unwinding at expiry. Same as above. Cover that call, before you ditch your hedge in the long stock. Playing the tradeoff game of expiration/exercise cost against open market transactions is tough. You need sub-penny commissions on stock (and I would say a lot of leverage) and most importantly you need options charges much lower than IB to make that kind of trading work. IB is the cheapest in the retail brokerage game, but those commissions aren't even close to what the traders are getting who are more than likely on the other side of your options trades. If you're into math, do this thought experiment: Consider the outcome X of a random walk process (a stock doesn't behave this way, but for understanding the question you asked, this is useful): On the first day, X=some integer X1. On each subsequent day, X goes up or down by 1 with probability 1/2. Let's think of buying a call option on X. A European option with a strike price of S that expires on day N, if held until that day and then exercised if profitable, would yield a value Y = min(X[N]-S, 0). This has an expected value E[Y] that you could actually calculate. (should be related to the binomial distribution, but my probability & statistics hat isn't working too well today) The market value V[k] of that option on day #k, where 1 < k < N, should be V[k] = E[Y]|X[k], which you can also actually calculate. On day #N, V[N] = Y. (the value is known) An American option, if held until day #k and then exercised if profitable, would yield a value Y[k] = min(X[k]-S, 0).  For the moment, forget about selling the option on the market. (so, the choices are either exercise it on some day #k, or letting it expire) Let's say it's day k=N-1.  If X[N-1] >= S+1 (in the money), then you have two choices: exercise today, or exercise tomorrow if profitable. The expected value is the same. (Both are equal to X[N-1]-S). So you might as well exercise it and make use of your money elsewhere. If X[N-1] <= S-1 (out of the money), the expected value is 0, whether you exercise today, when you know it's worthless, or if you wait until tomorrow, when the best case is if X[N-1]=S-1 and X[N] goes up to S, so the option is still worthless. But if X[N-1] = S (at the money), here's where it gets interesting. If you exercise today, it's worth 0. If wait until tomorrow, there's a 1/2 chance it's worth 0 (X[N]=S-1), and a 1/2 chance it's worth 1 (X[N]=S+1). Aha! So the expected value is 1/2. Therefore you should wait until tomorrow. Now let's say it's day k=N-2.  Similar situation, but more choices: If X[N-2] >= S+2, you can either sell it today, in which case you know the value = X[N-2]-S, or you can wait until tomorrow, when the expected value is also X[N-2]-S. Again, you might as well exercise it now. If X[N-2] <= S-2, you know the option is worthless. If X[N-2] = S-1, it's worth 0 today, whereas if you wait until tomorrow, it's either worth an expected value of 1/2 if it goes up (X[N-1]=S), or 0 if it goes down, for a net expected value of 1/4, so you should wait. If X[N-2] = S, it's worth 0 today, whereas tomorrow it's either worth an expected value of 1 if it goes up, or 0 if it goes down -> net expected value of 1/2, so you should wait. If X[N-2] = S+1, it's worth 1 today, whereas tomorrow it's either worth an expected value of 2 if it goes up, or 1/2 if it goes down (X[N-1]=S) -> net expected value of 1.25, so you should wait. If it's day k=N-3, and X[N-3] >= S+3 then E[Y] = X[N-3]-S and you should exercise it now; or if X[N-3] <= S-3 then E[Y]=0.  But if X[N-3] = S+2 then there's an expected value E[Y] of (3+1.25)/2 = 2.125 if you wait until tomorrow, vs. exercising it now with a value of 2; if X[N-3] = S+1 then E[Y] = (2+0.5)/2 = 1.25, vs. exercise value of 1; if X[N-3] = S then E[Y] = (1+0.5)/2 = 0.75 vs. exercise value of 0; if X[N-3] = S-1 then E[Y] = (0.5 + 0)/2 = 0.25, vs. exercise value of 0; if X[N-3] = S-2 then E[Y] = (0.25 + 0)/2 = 0.125, vs. exercise value of 0. (In all 5 cases, wait until tomorrow.) You can keep this up; the recursion formula is E[Y]|X[k]=S+d = {(E[Y]|X[k+1]=S+d+1)/2 + (E[Y]|X[k+1]=S+d-1) for N-k > d > -(N-k), when you should wait and see} or {0 for d <= -(N-k), when it doesn't matter and the option is worthless} or {d for d >= N-k, when you should exercise the option now}. The market value of the option on day #k should be the same as the expected value to someone who can either exercise it or wait. It should be possible to show that the expected value of an American option on X is greater than the expected value of a European option on X. The intuitive reason is that if the option is in the money by a large enough amount that it is not possible to be out of the money, the option should be exercised early  (or sold), something a European option doesn't allow, whereas if it is nearly at the money, the option should be held, whereas if it is out of the money by a large enough amount that it is not possible to be in the money, the option is definitely worthless. As far as real securities go, they're not random walks (or at least, the probabilities are time-varying and more complex), but there should be analogous situations. And if there's ever a high probability a stock will go down, it's time to exercise/sell an in-the-money American option, whereas you can't do that with a European option. edit: ...what do you know: the computation I gave above for the random walk isn't too different conceptually from the Binomial options pricing model. Check the rules with your broker. Usually if it expires in the money, the broker would exercise it. But you need to check with your broker about their rules on the matter. The time value decay is theoretically constant.  In reality, it is driven by supply and demand, just like everything else in the market.   For instance, if a big earnings announcement is coming out after the close for the day, you may see little or no time decay in the price of the options during the day before. Also, while in theory options have a set value as related to the trading price of the underlying security, that does not mean there will always be a buyer willing to pay a premium as they come close to expiration (in the last few minutes). You can't forget to account for the transaction fees associated with buying the options, or the risk factor involved.   It is rare, but there are times I've actually had to sell in the money calls at a penny or two LESS than they're actually worth at the time just to unload them in the last few minutes before the market closed on expiration day. The risk situation of the put option is the same whether you own the stock or not.  You risk $5 and stand to gain 0 to $250 in the period before expiration (say $50 if the stock reaches $200 and you sell).   Holding the stock or not changes nothing about that.  What is different is the consideration as to whether or not to buy a put when you own the stock.  Without an option, you are holding a $250 asset (the stock), and risking that money.  Should you sell and miss opportunity for say $300? Or hold and risk loss of say $50 of your $250?  So you have $250 at risk, but can lock in a sale price of $245 for say a month by buying a put, giving you opportunity for the $300 price in that month.  You're turning a risk of losing $250 (or maybe only $50 more realistically) into a risk of losing only $5 (versus the price your stock would get today). "The answer to the question, can I exercise the option right away? depends on the exercise style of the particular option contract you are talking about. If it's an American-style exercise, you can exercise at any moment until the expiration date. If it's an European-style exercise, you can only exercise at the expiration date. According to the CME Group website on the FOPs on Gold futures, it's an American-style exercise (always make sure to double check this - especially in the Options on Futures world, there are quite a few that are European style): http://www.cmegroup.com/trading/metals/precious/gold_contractSpecs_options.html?optionProductId=192#optionProductId=192 So, if you wanted to, the answer is: yes, you can exercise those contracts before expiration. But a very important question you should ask is: should you? Option prices are composed of 2 parts: intrinsic value, and extrinsic value. Intrinsic value is defined as by how much the option is in the money. That is, for Calls, it's how much the strike is below the current underlying price; and for Puts, it's how much the strike is above the current underlying price. Extrinsic value is whatever amount you have to add to the intrinsic value, to get the actual price the option is trading at the market. Note that there's no negative intrinsic value. It's either a positive number, or 0. When the intrinsic value is 0, all the value of the option is extrinsic value. The reason why options have extrinsic value is because they give the buyer a right, and the seller, an obligation. Ie, the seller is assuming risk. Traders are only willing to assume obligations/risks, and give others a right, if they get paid for that. The amount they get paid for that is the extrinsic value. In the scenario you described, underlying price is 1347, call strike is 1350. Whatever amount you have paid for that option is extrinsic value (because the strike of the call is above the underlying price, so intrinsic = 0, intrinsic + extrinsic = value of the option, by definition). Now, in your scenario, gold prices went up to 1355. Now your call option is ""in the money"", that is, the strike of your call option is below the gold price. That necessarily means that your call option has intrinsic value. You can easily calculate how much: it has exactly $5 intrinsic value (1355 - 1350, undelrying price - strike). But that contract still has some ""risk"" associated to it for the seller: so it necessarily still have some extrinsic value as well. So, the option that you bought for, let's say, $2.30, could now be worth something like $6.90 ($5 + a hypothetical $1.90 in extrinsic value). In your question, you mentioned exercising the option and then making a profit there. Well, if you do that, you exercise your options, get some gold futures immediately paying $1350 for them (your strike), and then you can sell them in the market for $1355. So, you make $5 there (multiplied by the contract multiplier). BUT your profit is not $5. Here's why: remember that you had to buy that option? You paid some money for that. In this hypothetical example, you payed $2.30 to buy the option. So you actually made only $5 - $2.30 = $2.70 profit! On the other hand, you could just have sold the option: you'd then make money by selling something that you bought for $2.30 that's now worth $6.90. This will give you a higher profit! In this case, if those numbers were real, you'd make $6.90 - $2.30 = $4.60 profit, waaaay more than $2.70 profit! Here's the interesting part: did you notice exactly how much more profit you'd have by selling the option back to the market, instead of exercising it and selling the gold contracts? Exactly $1.90. Do you remember this number? That's the extrinsic value, and it's not a coincidence. By exercising an option, you immediately give up all the extrinsic value it has. You are going to convert all the extrinsic value into $0. So that's why it's not optimal to exercise the contract. Also, many brokers usually charge you much more commissions and fees to exercise an option than to buy/sell options, so there's that as well! Always remember: when you exercise an option contract, you immediately give up all the extrinsic value it has. So it's never optimal to do an early exercise of option contracts and individual, retail investors. (institutional investors doing HFT might be able to spot price discrepancies and make money doing arbitrage; but retail investors don't have the low commissions and the technology required to make money out of that!) Might also be interesting to think about the other side of this: have you noticed how, in the example above, the option started with $2.30 of extrinsic value, and then it had less, $1.90 only? That's really how options work: as the market changes, extrinsic value changes, and as time goes by, extrinsic value usually decreases. Other factors might increase it (like, more fear in the market usually bring the option prices up), but the passage of time alone will decrease it. So options that you buy will naturally decrease some value over time. The closer you are to expiration, the faster it's going to lose value, which kind of makes intuitive sense. For instance, compare an option with 90 days to expiration (DTE) to another with 10 DTE. One day later, the first option still has 89 DTE (almost the same as 90 DTE), but the other has 9 DTE - it relatively much closer to the expiration than the day before. So it will decay faster. Option buyers can protect their investment from time decay by buying longer dated options, which decay slower! edit: just thought about adding one final thought here. Probabilities. The strategy that you describe in your question is basically going long an OTM call. This is an extremely bullish position, with low probability of making money. Basically, for you to make money, you need two things: you need to be right on direction, and you need to be right on time. In this example, you need the underlying to go up - by a considerable amount! And you need this to happen quickly, before the passage of time will remove too much of the extrinsic value of your call (and, obviously, before the call expires). Benefit of the strategy is, in the highly unlikely event of an extreme, unanticipated move of the underlying to the upside, you can make a lot of money. So, it's a low probability, limited risk, unlimited profit, extremely bullish strategy." Yes, if the call expires worthless, leaving you with stock. Then you can exercise your put when the stock goes below put strike price. An expired option is a stand-alone event, sold at $X, with a bought at $0 on the expiration date.  The way you phrased the question is ambiguous, as 'decrease toward zero' is not quite the same as expiring worthless, you'd need to buy it at the near-zero price to then sell another covered call at a lower strike.  Edit - If you entered the covered call sale properly, you find that an in-the-money option results in a sale of the shares at expiration. When entered incorrectly, there are two possibilities, the broker buys the option back at the market close, or you wake up Sunday morning (the options 'paperwork' clears on Saturday after expiration) finding yourself owning a short position, right next to the long. A call, and perhaps a fee, are required to zero it out.  As you describe it, there are still two transactions to report, the option at $50 strike that you bought and sold, the other a stock transaction that has a sale price of the strike plus option premium collected. "There is a white paper on ""The weekend effect of equity options"" it is a good paper and shows that (for the most part) option values do lose money from Friday to Monday. Which makes sense because it is getting closer to expiration. Of course this not something that can be counted on 100%.  If there is some bad news and the stock opens down on a Monday the puts would have increased and the calls decreased in value. Article Summary (from the authors): ""We find that returns on options on individual equities display markedly lower returns over weekends (Friday close to Monday close) relative to any other day of the week. These patterns are observed both in unhedged and delta-hedged positions, indicating that the effect is not the result of a weekend effect in the underlying securities. We find even stronger weekend effects in implied volatilities, but only after an adjustment to quote implied volatilities in terms of trading days rather than calendar days.""  ""Our results hold for puts and calls over a wide range of maturities and strike prices, for both equally weighted portfolios and for portfolios weighted by the market value of open interest, and also for samples that include only the most liquid options in the market. We find no evidence of a weekly seasonal in bid-ask spreads, trading volume, or open interest that could drive the effect. We also find little evidence that weekend returns are driven by higher levels of risk over the weekend.  ""The effect is particularly strong over expiration weekends, and it is also present to a lesser degree over mid-week holidays. Finally, the effect is stronger when the TED spread and market volatility are high, which we interpret as providing support for a limits to arbitrage explanation for the persistence of the effect."" - Christopher S. Jones & Joshua Shemes You can read more about this at this link for Memphis.edu" No, if you are trading options to profit solely off the option and not own the underlying, you should trade it away because it costs more to exercise: At the higher level - yes. The value of an OTM (out of the money) option is pure time value. It's certainly possible that when the stock price gets close to that strike, the value of that option may very well offer you a chance to sell at a profit. Look at any OTM strike bid/ask and see if you can find the contract low for that option. Most will show that there was an opportunity to buy it lower at some point in the past.  Your trade. Ask is meaningless when you own an option. A thinly traded one can be bid $0 /ask $0.50. What is the bid on yours?