Essential rules to understand about exercising options
In actual trading, it is important to pay attention to the exercise rules for U.S. stock options.
Example Using U.S. Stock Options:
If you hold an NVDA 240816 120.00C option, you can exercise it on any day on or before the expiration date (for instance, July 16, August 15, or August 16).
However, once the market closes on August 16, this option will expire, and you will no longer be able to submit an exercise request.
Scenario for Early Exercise:
If you wish to exercise early, ensure that you submit your request before 4:00 PM Eastern Time to allow your broker (moomoo) to process your request after the market closes.
If you submit your request after 4:00 PM Eastern Time, it will be processed on the next trading day, which will affect your exercise effective date.
For example: If you submit your exercise request before 4:00 PM Eastern Time on July 16, the effective exercise date will be that day.
If you submit your request after 4:00 PM Eastern Time on July 16, the effective exercise date will be the next trading day.
Scenario for Expiration Exercise:
If you want the option to be automatically exercised at expiration, no action is required on your part;
the effective exercise date will be the expiration date of the option, which is August 16.
According to the rules set by the Options Clearing Corporation (OCC), automatic exercise of U.S. stock options will occur only if the following conditions are met:
For Long Call Options: On the expiration date, if the option is in the money (ITM), and the underlying asset's price is ≥ $0.01 above the strike price, the option will be automatically exercised.
For Long Put Options: On the expiration date, if the option is in the money (ITM), and the underlying asset's price is ≤ $0.01 below the strike price, the option will automatically be exercised.
Successful Exercise Scenario:
If on the exercise effective date, the closing price of NVIDIA's stock is ≥ $120.01, and your account has sufficient buying power, the system will automatically exercise the option without any action required from you.
After T+1 days, this option will disappear from your account, and your account will be debited $12,000, while you will receive 100 shares of NVIDIA stock.
(Note: It is crucial to pay special attention to the two conditions: meeting the automatic exercise criteria and having sufficient account margin. Both conditions must be satisfied!)
This presentation is for informational and educational use only and is not a recommendation or endorsement of any particular investment or investment strategy. Investment information provided in this content is general in nature, strictly for illustrative purposes, and may not be appropriate for all investors. Read more
