Excercising the Option

As a holder of an American style option, you can choose to exercise your option at any point up until the expiration date. Typically, options are only exercised when they are in-the-money. If the option is out-of-the-money, exercising would mean either paying more than market price to buy shares or receiving less than market price to sell shares.

As a writer, you can't control or predict whether your option will be exercised. Though, if the option is in-the-money, it's likely the holder will decide to capitalize on the profit and exercise the option. The only way to avoid exercise is by closing out the position before the option expires or the holder chooses to exercise.

Automatic Exercise

All long options are subject to automatic exercise by the Options Clearing Corporation (OCC) unless you instruct otherwise. The option is exercised automatically if it's in-the-money by a predetermined amount. The OCC will exercise options that are in-the-money by $0.01 or more, and Scottrade also uses this amount. Other brokerages may set their own auto-exercise procedures.

Examples exclude transaction costs and tax considerations.

Options involve risk and are not suitable for all investors. Detailed information on our policies and the risks associated with options can be found in Scottrade's Options Application and Agreement, Brokerage Account Agreement, and Characteristics and Risks of Standardized Options (available at your local Scottrade branch office or from the Options Clearing Corporation at 1-888-OPTIONS or by visiting www.888options.com). All option accounts require prior approval by Scottrade. Market volatility, volume, and system availability may impact account access and trade execution. Supporting documentation for any claims will be supplied upon request.