Options Exercise, Assignment, Expiration, and Contract Adjustments

This article explains how options exercise, expiration, assignment, and contract adjustments work for listed U.S. equity options, including how to submit a Do Not Exercise instruction in the Clear Street Active app.

Exercising options

Exercising an option means using the right the contract gives you.

• Exercising a call means buying the underlying shares at the strike price.
• Exercising a put means selling the underlying shares at the strike price.

Each standard equity options contract represents 100 shares.

Most listed U.S. equity options are American-style, meaning they can be exercised any time up to and including expiration. In the Clear Street Active app, the exercise instruction currently available is Do Not Exercise, described below.

At expiration

At expiration, options are generally handled based on whether they are in the money or out of the money.

• Options that are in the money by $0.01 or more are exercised automatically through the Options Clearing Corporation’s exercise-by-exception process. You do not need to submit anything for automatic exercise.
• Options that are out of the money expire worthless, with no action required.

Do Not Exercise instructions

If you do not want an in-the-money option exercised, submit a Do Not Exercise (DNE) instruction before the cutoff. A DNE is a contrary instruction that tells us not to exercise an option that closed in the money, overriding the automatic exercise.

To submit a DNE instruction in the Clear Street Active app on the option’s expiration date:

1. On the Home screen, open the Positions tab.
2. Find the option position and tap the ⋮ menu next to it.
3. Select Do Not Exercise.

If you submit a DNE instruction, the option expires worthless and any intrinsic value is forfeited.

Check the number of contracts before you submit. Once submitted, a DNE can't be changed or canceled in the app. If you want to add contracts, submit another DNE for the additional contracts only.

DNE cutoff time

Submit DNE instructions by 5:00 PM ET on the expiration date. Instructions received after 5:00 PM ET but before 5:30 PM ET will be handled on a best-efforts basis.

Selling instead of exercising

If you want to capture value without exercising, sell the position in the market before expiration instead. To close an options position in the Clear Street Active app, open the position and tap Close Position.

Assignment

Assignment occurs when the holder of an option exercises their right and the short option position is selected to fulfill the obligation.

• If you are assigned on a short call, you may be required to sell the underlying shares at the strike price.
• If you are assigned on a short put, you may be required to buy the underlying shares at the strike price.

Assignment can occur before expiration for American-style options and may also occur at expiration when an option is exercised.

Contract adjustments

Option contracts may be adjusted after certain corporate actions, such as stock splits, mergers, special dividends, or other issuer events. Adjustments may affect the option’s deliverable, strike price, multiplier, or other contract terms.

Contract adjustments are determined by the Options Clearing Corporation. If your option is adjusted, review the adjusted contract terms carefully before trading or submitting instructions.

Important considerations

• A DNE instruction causes an in-the-money option to expire worthless, forfeiting any intrinsic value.
• A DNE can't be changed or canceled in the app once submitted.
• Selling an option before expiration may be preferable if you want to capture value without exercising.
• Short options can be assigned, including before expiration for American-style options.
• Corporate actions can change the terms of an option contract through OCC adjustments.