A call option can be defined as the contract of providing the right to a buyer to buy a stock or asset at the specified price within the specified time limit or the date.
So, the user will not have any obligation to buy it and if they choose to buy the stock, it means that they have chosen to exercise it.
Other than this, as a security to the trader, the buyer will have to pay a premium amount to the trader.
If you can easily predict how a particular asset will perform in the future, a call option is a good way to make some money.
There are times when a user may want to exercise a call option when there is no money in the contract or if the value of the contract is too high.
At such points, you may have to choose to exercise your call options on Robinhood. There are times when your contracts turn out to be very expensive and also, can not be afforded easily.
In that scenario, the best thing that you can do is to exercise the call option. If you wish to know how to exercise a call option on Robinhood, this article is with reading. Check out all the stepwise processes to exercise the call option.
Can I Exercise Call Option on Robinhood?
Now, before we answer you on how to exercise the call option on Robinhood, we would like to answer if you can exercise the call option on Robinhood.
YES, You can exercise the call option on Robinhood. For this, you need to get approved to trade on the application. If you are approved, you will be able to exercise call options anytime. Moreover, most traders make sure to exercise the options before the expiry date.
Other than this, if your contract is in the money, you must exercise it to obtain some extra money in your account. You can also sell your option rather than buying or selling the shares.
In that way, you will make some less money and lose the money that you have paid for the premium. Other than this, you can also choose to exercise your option even if it is out of money. In such a case, you will lose the cost of the contract.
People usually find it better to secure call options and pay for the premium rather than using all your cash to buy stocks. Therefore, most people choose to secure the contract so that they can exercise the contract with marginal gains.
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How to Exercise Call Option on Robinhood?
So, now we have come to the main part of this article. Here, we have explained to you the complete process to exercise a call option on Robinhood. Make sure you similarly pursue the process as mentioned to avoid making any mistakes in the process.
Steps to Exercise Call Option on Robinhood:
Step 1: The initial step in the process is to check if your call option is in the money or out of the money. In case the contract is in the money, it is a great time to exercise your call opinion to earn some good amount. Otherwise, if the contract is out of money, you will still be able to make some money but will not get the premium amount back. No matter what the situation is, exercising the option is a good way.
Step 2: After analyzing your call options, you will have to open the application and then log in to the Robinhood application using your credentials. Next, tap on the contract which you wish to exercise. Go through it properly and then check the contact again. Now, Robinhood is aware that you may end up wasting your money by exercising the option, and hence, it will display a prompt for the same.
Step 3: Now after going through your contract again, you will have to confirm the same. When you will confirm, it will again prompt that you are going to exercise an option that is maybe out of money or has extensive value. This is provided so that it can guide you to make a decision. When done, you will be asked to submit the order.
Step 4: Now, when you will submit to exercise your call option. One thing that you will have to keep in mind is that you cannot cancel your request after this. Also, you will have to submit this request anytime between 12 AM and 4 PM. After 4 PM, your request will not be executed. The request will then be queued till the next trading day. So, this simply means that you will have time till 11:59 to cancel your request if you want.
Step 1: Lastly, after submitting your proposal, you will get a card on the screen implying that the transaction was successful. Also, you will get an email confirmation for the same.
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What Happens if I Don’t Exercise My Call Option?
So, if you choose not to exercise your call option, it will expire. There is an expiration date associated with each contract that one must be aware of so that they can exercise it before it.
Now, when you decide that you will not exercise the option, two things can happen, first: it will expire valueless Second: if it is in the money, it will be exercised on its own.
Robinhood will attempt to exercise your call option on its own when the option is in the money. Certain situations in which Robinhood will refrain from exercising your option are as follows:
- Even after exercising the option, the option will have a short stock position.
- There is insufficient buying power in the account.
- If you have submitted a DO NOT EXERCISE request on the behalf of your account.
- Also, if you have requested to exercise after 5 PM.
After the option expires, you will not see the option contract on your home screen. But, you will still be able to find it in your account history tab.
Also, you will have to keep in mind there are no fees charged via Robinhood to exercise your option. There is no commission as well which makes it a cost-effective option.
Call options are a great way to earn some extra money for you. But, you will have to keep in mind the expiry date, the associated rules and must decide when to exercise call options carefully.
We have attempted to explain the whole process to exercise call options on Robinhood easily and have also answered the concerned questions. We hope that we have helped you.