The option you forgot to close

An option that finishes at least one cent in the money is exercised for you. This is called exercise by exception, and it runs through the options clearing system without anyone pressing a button.

For a stock or ETF option, that means shares. A long call buys 100 shares per contract at the strike. A long put sells 100 shares per contract at the strike, which leaves you short if you didn't own them.

An option that finishes out of the money simply expires. The premium you paid is gone, and nothing else happens. If you sold the option, the mirror applies. An in-the-money short call means you're assigned and must sell shares. An in-the-money short put means you must buy them.

Index options such as SPX work differently. They settle in cash, so there are no shares to receive or deliver.

Small option positions turn into large share positions overnight. That's the part that surprises people.

Say you hold 5 calls with a 40 strike, bought for 0.30 each, a 150 dollar trade. The stock closes at 40.05 on expiry day. Each contract is exercised, so you now own 500 shares at 40. That's a 20,000 dollar position.

If your account holds 2,500 dollars, you're 17,500 short of paying for it. Your broker will issue a margin call or sell the shares, often at the next open. If the stock opens at 38.50, those 500 shares lose 750 dollars. That's on top of the premium, on a trade that risked 150.

Puts work the same way in reverse. Five exercised puts leave you short 500 shares, with no limit on how far the stock can rise against you.

Your broker may not wait for that to happen. If your account can't carry the shares, they may close the position on expiry afternoon at whatever price is available. Each broker sets its own cutoff time and policy, so read yours before the next expiry.

You can also send a do-not-exercise instruction. That stops an in-the-money long option from turning into shares. It has to reach your broker before their deadline, which can be well before the official one.

There is a timing gap to know about. Expiring stock options stop trading at the close, but the shares keep trading after hours. Exercise decisions can still be made after the bell. A contract that looked safely out of the money at 4:00 can end up exercised.

None of this needs managing if the position is closed before the final minutes. Pick a fixed exit time for expiry days and write it down. Close at that time, whatever price is doing.

You receive the current market price, and the contract is gone. No exercise, no shares, no assignment risk. Any value left in the option comes back to you as cash.

That value has two parts. Intrinsic value is how far the option is in the money. Time value is the rest, and it shrinks toward zero as expiry gets closer. Say you close a call with a 40 strike while the stock is at 41. You get at least the 1 dollar of intrinsic value, plus whatever time is left.

Selling also beats exercising for a small account. Exercising a call costs you the full share price. Selling it hands you the profit without the capital, and the money is free for the next trade.

Quotes can get wide in the last minutes of expiry day. Closing a little earlier usually gets you a cleaner fill. That timing is a judgment call.

Run this on the morning of any expiry you hold a position into.