Option Expiration, Exercise, and Assignment

Managing your options positions is an essential part of trading at Composer. Below, you’ll find key information on how options contracts expire, how to exercise your rights, and what happens if your contract is assigned.

Expiration

Every options contract has a set expiration date, which determines the last day you can trade, exercise, or close your position. After the expiration date, the contract will either be exercised (if it’s in the money) or expire worthless.

• At expiration, Composer will attempt to exercise your option if it’s $0.01 or more in the money, provided you have the required buying power (for calls) or the necessary shares (for puts).
• If you don’t have sufficient buying power or shares, in-the-money contracts will be liquidated.
• For covered calls or cash-secured puts that are in the money by $0.01 or more, Composer will automatically assign the contract after market close on the expiration date.
• Contracts that are at the money or out of the money will generally expire with no action taken.
• Composer does not support cabinet trades. Contracts that are not exercised or assigned may expire worthless.

Exercise

As the buyer of an option, you have the right—but not the obligation—to exercise your contract and buy or sell the underlying security at the specified strike price before expiration. To exercise an option on Composer:

1. Go to your Portfolio Holdings and select the option you wish to exercise.
2. Choose Exercise.
3. Follow the on-screen instructions and confirm your choice.
   • Please note: You must have sufficient buying power or shares to complete the exercise.

If your option is out of the money at market close, no action will be taken, and the contract will typically expire. If you wish to prevent an in-the-money option from being auto-exercised, you must submit a Do Not Exercise (DNE) request before 3:15 PM ET on the expiration date by contacting help@composer.trade.

If you lack the buying power or shares needed to exercise, you can either close your position by selling the option or consider submitting a DNE request. However, if your option still has value, selling it may be the best way to realize that value.

Assignment

When you sell an options contract (whether a call or a put), you take on the obligation to buy or sell the underlying security at the contract’s strike price if you are assigned. Assignment can happen at any time while the contract is open, including overnight, and is determined on a random basis by the Options Clearing Corporation (OCC). Our clearing partner, Alpaca, follows this industry-standard process (random basis) to assign contracts to accounts.

As an options writer, you are at risk of assignment up to and including the expiration date. For stock and ETF options, assignment can occur at any point before expiration if the contract is in the money. For index options, assignment typically happens only at expiration. Any option contract that is in the money by $0.01 or more at expiration will generally be automatically exercised unless the owner has requested otherwise.

If you have any questions or feedback, our team is available at help@composer.trade! 

Disclaimer: Options trading involves significant risk and is not appropriate for all investors. Prior to buying or selling an option with Composer Securities LLC, please read the "Characteristics and Risks of Standardized Options," also known as the Options Disclosure Document (ODD). You can access the ODD by clicking here. Options transactions are often complex and can expose investors to potentially rapid and substantial losses. In some cases, you may lose your entire investment in a relatively short period. Furthermore, certain complex options strategies carry additional risk, including the potential for losses that may exceed your original investment amount.