Exercise, Let expire or Close. Three Smart Moves

As an option approaches expiry, it is common to feel stuck. Do you sell and lock in a loss, hold and risk losing everything, or exercise and end up with shares you did not plan for?

A lot of new traders get caught out here. The issue is not the decision itself, it is understanding your choices and acting at the right time.

The key idea to understand first

Before expiry, closing an option and exercising it are generally economically similar.

What actually matters is timing. As expiry gets closer, option values can move quickly with even small changes in the underlying price. So the real decision is not just what to do, but when to do it.

Step 1: know your three choices

1. Close the position

Usually considered for locking in value or avoiding ownership

This means selling the option before it expires to take your profit or to recover any remaining premium.

Usually considered when:

• The option still has time value

• You do not want to buy the underlying asset at the strike price.

Example

You hold a call option with a strike of $180. The share price is $178 and expiry is close. The option still trades at $0.50. Closing the position lets you recover some value instead of letting it expire worthless.

2. Exercise the option

Best for in the money options when you want the asset

Exercising means using your right to buy or sell the underlying asset at the strike price.

Best used when:

• The option is in the money

• You want to take ownership of shares for a call OR dispose of shares for a put at the options strike price.

Important note

Exercise rules differ between markets. On the ASX, options that are in the money are often automatically exercised. In US markets, this may depend on your broker. You also need to have sufficient funds or holdings to complete the transaction.

3. Let the option expire

Best for options with no remaining value

If an option is out of the money and has little to no time value left, letting it expire is often the simplest choice.

This means accepting the premium paid as a loss and moving on.

Step 2:  Example

Imagine you are an Australian investor holding a put option on WMT:

• strike price: $100

• premium paid: $3

• expiry: in two days

Scenario 1: share price is $95

The option is in the money

• Exercising allows you to sell at $100

• This locks in value based on the price difference between the strike price and current price of WMT

Scenario 2: share price is $102

The option is out of the money

• There is no intrinsic value

• The remaining premium is minimal

Letting it expire is usually the most practical choice.

Scenario 3: share price is $99

Slightly in the money, but you do not want shares

• The option still has some value

• Closing the position allows you to realise that value

This avoids the extra steps, costs and risk of exercising.

Step 3: make the process easier

A few simple tools can help you stay in control:

• Expiry alerts so you do not miss key dates

• Quick checks via options calculator to see if your option is in or out of the money

• Strategy tools to understand what happens after exercise

Final takeaway

Expiry does not need to be stressful if you plan ahead.

Ask yourself:

• Does the option still have value

• Do I want the underlying asset

• Can I afford to exercise

There is no single correct choice. The right decision depends on your strategy and your situation.

Stay calm, act early and focus on making each trade intentional.

Risk warning：This information is general in nature and has been prepared without considering your financial objectives, situation or needs. Consider the appropriateness of this information in light of your personal circumstances before making investment decisions. Options trading involves substantial risks and may not be suitable for all investors. Losses could potentially exceed your initial investment. Please consider our Financial Services Guide (FSG), US Options Product Disclosure Statement (PDS) and US Options Target Market Determination (TMD) available on moomoo.com/au before trading options with us.