If you do not have the buying power or cash available in your account to hold the shares resulting from an exercise or assignment of your options on the last trading day, your position may be closed out prior to the close of business. We may also elect to not exercise your long option position. Please remember that your short option can also be assigned at any time on a random basis even though it is out of the money. For more information about random assignments, please click here.
Tradier Brokerage reserves the right to close short options that are slightly out of the money at expiration. Which short options are closed is at the discretion of Tradier Brokerage and the decision to close these options will be based on potential assignment value versus the overall account size. Closing out of the money short options protects both the customer and Tradier Brokerage. Please refer the following example of the potential risk Tradier mitigates with this policy.
Example: An account is short 30 contracts of the SPY $500 Call options as part of a spread. SPY closes at $499.50. These options are $0.50 out of the money. However, if SPY rises in the post-market, long option holders may exercise these options leading to an assignment. If all contracts were assigned, the account would be short 3,000 shares of SPY. If the account size is only $5,000, a loss of the entire account would occur if SPY opened $1.33 higher on the following trading day. This risk is UNLIMITED since the long options the account previously held for protection have expired. In this example, Tradier would buy to close these option contracts prior to expiration.