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Help Center Trade Trading in US Options Stock Options Exercise & Settlement: A Comprehensive Guide

Stock Options Exercise & Settlement: A Comprehensive Guide

1. How are stock options exercised and settled?

Most exercises are processed automatically at the settlement price on the option's expiration date. If you, as the option holder, wish to exercise early, please refer to [How can I exercise my options early?].
On the expiration date, if the option is out of the money, it will lapse and become worthless; no exercise will take place. If the option's intrinsic value is equal to or greater than $0.01, it will be exercised automatically with physical settlement.
As the option writer (the obligated party), when the option is exercised, the clearinghouse will randomly assign open short positions to exercised options. If your account is assigned, you must deliver the underlying stock (for call option writers) or purchase the underlying stock (for put option writers).
Generally, in-the-money options will be exercised at expiration. If you hold a short in-the-money option at expiration, you may be assigned. Since the buyer has the right to decide whether to exercise, short option holders may not always be assigned, or might even be assigned on out-of-the-money options.

2. How can I exercise my options early?

Early exercise usually results in less profit than closing the position, since it involves forfeiting the remaining time value. When an option is deep in the money and liquidity is low, making it difficult to close the position at a fair price, early exercise may be considered. Another common reason for early exercise is when an investor wants to receive dividends from the underlying stock and thus exercises a call option before the ex-dividend date.
Requesting early exercise
You may submit an early exercise request for US stock options anytime after opening a position and before the expiration date. To initiate your request, please email support@ca.moomoo.com or call our customer service at 416-849-0915. If submitting by email, please include:
  • Subject: Early Exercise Request for US Stock Options
  • Body: Your name, account number, option symbol, total quantity held, and the quantity you wish to exercise early.
Processing time
  • Requests submitted before 3:30 PM ET on a trading day will be processed as soon as possible. Settlement is expected to be completed before the market opens on the next trading day, at which time your account's cash balance and stock holdings will be updated accordingly.
  • Requests submitted after 3:30 PM ET will be processed on the next trading day.
Buying power review
After you submit an early exercise request, we will review your account to ensure you have sufficient buying power to cover the exercise. If your account lacks the necessary funds, or if exercising would place your account in "Margin Call" status, your request may be rejected.
You cannot exercise early if:
  • There are pending orders for the option contract.
  • You have already submitted an early exercise request for the same contract.
Notes:
  • By default, when you submit an early exercise request, we will only exercise the option if it is in-the-money at market close. Early exercise requests for out-of-the-money options will be rejected to help you avoid potential losses.
  • If you choose to exercise regardless of whether the option is in-the-money or out-of-the-money, your early exercise request will be processed after market close, and you will bear any potential losses.
  • We currently do not support lapse requests for US stock options.

3. How will my total assets change after exercising an option?

After exercising an option, in addition to the change in the number of option contracts, your total assets will be affected by three price factors: the option's strike price, the stock's market price, and the option's market price.
If the exercise results in a sale, the number of shares is represented as a negative value. If it results in a purchase, it is represented as a positive value.
The formula for calculating the change in total assets is as follows:
New Total Assets = Previous Total Assets + Stock Market Value from Option Exercise + Cash Received or Paid for Stock Trade – Option Premium
Where:
  • Stock Market Value from Option Exercise: The market value of shares obtained through the option exercise, calculated as Share Quantity * Current Stock Price.
  • Cash Received or Paid for Stock Trade: The cash you receive from selling the underlying shares or the amount you pay to buy the underlying shares at the strike price, calculated as Share Quantity * Strike Price.
  • Option Premium: The current value of the option contracts you hold, calculated as Current Option Price * Contract Multiplier * Contract Quantity. (The multiplier is typically 100)
Example:
Suppose your initial total assets are $50,000. You exercise one AAPL 230 Call option (buy direction) with an option market price of $30 and an strike price of $230. The current AAPL stock price is $250.
  • Stock Market Value from Option Exercise = 100 × $250 = $25,000
  • Cash Received or Paid for Stock Trade = 100 × $230 = $23,000
  • Option Premium = $30 × 1 × 100 = $3,000
  • New Total Assets = $50,000 + $25,000 – $23,000 – $3,000 = $49,000

4. Are there any fees associated with an option exercise?

No commission is charged for option exercise or assignment.

5. Is it possible that the exercise will not be successful?

Moomoo Canada currently does not support short selling of non-shortable stock. If you have in-the-money options that will lead to short positions in such non-shortable stock after exercise, you need to either close these option positions (either by selling or buying back) before the contract expiration day or ensure your account has enough stocks for settlement. Otherwise, Moomoo reserves the right to liquidate these options.

6. Why is the margin requirement higher for close-to-expiry options?

Close-to-expiry options are options with less than five trading days until expiration.
When options expire, your positions may change as follows:
● Long Call Exercised: You will purchase the underlying stock, and the required cash will be deducted from your account.
● Long Put Exercised: You will sell the underlying stock short, and the corresponding cash will be credited to your account.
● Short Call Assigned: You will be required to sell the underlying stock short, and the corresponding cash will be credited to your account.
● Short Put Assigned: You will be required to purchase the underlying stock, and the required cash will be deducted from your account.
To better manage the risks associated with potential option exercises at expiration, Moomoo Canada begins calculating margin and settlement requirements for options that are in-the-money or near the money on expiration day. If you do not have sufficient funds to cover a potential exercise or assignment, your account may be flagged as "Margin Call" from a risk control perspective. It is your responsibility to ensure that your account has sufficient liquidity to cover possible option exercises, either by closing positions or depositing additional funds.
If your account is marked as "Margin Call," Moomoo Canada reserves the right to take the following actions:
1. Liquidate your option positions.
2. Allow your options to lapse without exercise.
3. Execute the option exercise but close the corresponding stock positions afterward, etc.

7. How to calculate the amount of funds required to exercise an option

Assume a client holds an option position: FUTU 210514 150C, with no other positions or excess cash in the account. On the expiration date, the underlying price of FUTU is $200. Assuming the option has no remaining time value, the value of the client's option holding at that moment is: (Current Price - Strike Price) × Contract Size × Number of Contracts = ($200 - $150) × 100 × 1 = $5,000. The client's Equity Loan Value (ELV) and Initial Margin (IM) are both $5,000, all of which comes from the value of the option position.
When this in-the-money option is exercised at expiry, the option's value drops to zero, and the client acquires a position in the underlying stock at the strike price. Specifically:
● The $5,000 option value goes to zero.
● The client buys 100 shares of FUTU at $150 per share.
The account's status after exercise will be:
● Cash: –100 × $150 = –$15,000 (a negative cash balance)
● Market Value of Positions: 100 × $200 = $20,000
● Equity Loan Value (ELV): $20,000 – $15,000 = $5,000 (remains unchanged)
● Initial Margin: Changes from $5,000 (for the option) to $10,000 (for the stock position, assuming a 50% margin requirement: $20,000 × 50% = $10,000)
Because the margin requirement has increased, the account is now short $5,000 in margin needed to maintain the new stock position.
Therefore, to successfully exercise the option, the client needs to deposit an additional $5,000 ($10,000 – $5,000) to meet the margin requirement for holding 100 shares of the underlying stock.

8. Why are my option orders cancelled in certain cases?

If you have unfilled 0DTE (zero days to expiration) option orders during the expiration risk control period, Moomoo Canada will calculate the required margin for exercise and settlement as if the order is filled. If this calculation puts your account at risk, Moomoo Canada reserves the right to cancel such orders.
Typically, these cancellations occur because you submitted the order before the risk control measures started (when the margin for exercise was not yet calculated). Once risk control is triggered near the market close, the system may review and cancel pending orders that would cause insufficient margin or increased risk.

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