When any newcomer joins the market, they spend most of their time understanding the type of trading strategies available for trading.
There are different options available like the call option and put option. But one thing that the user will have to keep in mind is that they have the right to exercise the options.
Exercising the option implies using your right to sell or buy any stock or financial instruments mentioned in the contract.
One thing that you have to know is that the user has the right but not obligation to sell or buy options at the specified time, date, and price.
Here, in this post, we are going to discuss in detail options and how you can exercise one on Robinhood. Robinhood allows you to exercise options more easily and systematically.
If you are new to it, we are here to help you. Check out all the relevant information about how to exercise options on Robinhood.
Understand About Exercise Option
If you are a holder of an option contract and If you wish to buy or sell it according to your agreement, it implies that you are using your right to exercise the options. This prevents the contract from going worthless.
Sometimes a user may choose to buy or sell the options at the same price mentioned in the contract, that price is known as the strike price.
- When you choose to exercise a put option, it means that you are choosing to sell your option at the specified price within the specified time.
- Else if you choose to exercise the call option, you choose to buy the security as specified in the contract.
The process to exercise any option is easy. All you have to do is to ask your broker if you wish to exercise an option and then your broker will give the exercise notice to the writer or the seller of the option. The exercising process will then be initiated.
How To Exercise Option On Robinhood?
So, usually, people ask if they can exercise options on Robinhood, the straightforward answer to this question is a Yes. You can easily exercise the option Robinhood.
You can do it if you have been given access to trade on this platform. Usually, people prefer to exercise their options before the expiry date. To know how to exercise options on Robinhood, check out all the steps mentioned below.
Steps to Exercise Option on Robinhood:
Step 1: To begin with, you will have to verify if your option is in money or not. For a call option, if it is in money, there are chances that you can earn something and if there is no money and you still choose to exercise your options, it means that you will lose the premium that you have paid. Therefore, the very first step is to check if there is money in the option or not.
Step 2: Next, you will have to open the Robinhood application on your mobile and then sign in to your account using your credentials. When done, tap on the contract which you are willing to exercise. Also, make sure to check the contract and make sure that this is the one that you wish to exercise.
Step 3: When done, you will get the confirmation prompt on your screen in which you can see if you are running out of money or it has a big value. At this moment also, you can rethink your decision.
Step 4: Now, you will have to tap on the submit option if you wish to exercise the option. One thing that you must be aware of is that you can only exercise the options between 12 AM to 4 PM. If you do it after 4 PM, you will have to wait for the next trading day so that your order can be executed. In the meantime, you can cancel your order if you want.
Step 5: In the end, you will have to submit your order. When you will submit it, a success prompt will appear on the screen and then you will receive an email that your order is exercised.
Also Read: How to Find Penny Stocks on Robinhood?
Does Robinhood Automatically Exercise Options?
If your Options contract is in money, Robinhood will automatically exercise it. If not, you can also choose to exercise the options.
There is an Auto-exercise rule in Robinhood. According to that, stocks in money at the expiration time will be exercised automatically.
For instance, if the strike price of the stock is 100$ and the time of expiration, it is at 100.3$, the option will be exercised.
What Time Do Options Expire Robinhood?
It is a must for the user to know when the option expires on Robinhood as you will not be able to use it once it expires from your account.
Usually, you may have to exercise your option after the third Friday of the month of expiration. For some people, this may be confusing because the expiry date will be given for Saturday.
Moreover, the expiry time may be different for different contracts based on the choice of the parties involved. For weekly options contracts, the time limit is different from the monthly ones.
They generally expire on Friday and if there is any public holiday occurring, it may end on Thursday rather than Friday.
What Happens When Options Expire Robinhood?
There is always an expiration date associated with the stock. This is one of the most important things related to the options as it will provide you with a time limit in which you can buy or sell the stocks.
Whenever you choose not to exercise the option, it can go two ways, either it will expire worthlessly or it will be exercised if it is in the money.
Here are certain things that you need to keep in mind concerning the expiry date of your contract.
- If you hold a lot of options and are in the money, or if your account has the buying power for it, Robinhood will attempt to exercise them for you.
- The broker will try to sell the option contract one hour before the expiration time of the contract if you don’t have enough buying power.
- There are different Robinhood checks designed to close the position that the account can not support considering the position, balance of the customer and other factors.
Other than this, if your option is in money, Robinhood will make sure to exercise it. This may not be done in the following scenarios:
- If you choose to exercise, it will be in a short stock position.
- In case the time for submitting an exercise request is 5 PM.
- The user does not have the required buying power.
- In case the user has submitted a do not exercise request to Robinhood.
Also, if no action is taken and your option expires, the contract will be removed from the home screen. To check it, you will have to hover to the account history option and look for the contract.
What Happens When You Exercise An Option On Robinhood?
So, now that you have chosen to exercise an option on Robinhood, what happens after that? If you wish to know it, here’s an explanation for you.
- If you have submitted an exercise before the expiration of the contract, your request will be submitted immediately. But, you will have to do this between 9 AM to 4 PM. Other than this, if you wish to cancel it, you will have to call Robinhood before 5 PM.
- If you choose to submit the exercise after 4 PM, you will have to wait for the next trading day to get that order accepted.
- Also, you will not be able to request early exercise on the day of expiration after 4 PM. To do this after 4 PM, you will have to contact the support team via call.
Now that you have submitted the request, you will get the confirmation prompt on the screen, and also, you will get the confirmation mail on your registered ID.
The confirmation email will be received when the order is confirmed by OCC.
Also Read: How to Activate Robinhood Debit Card?
Can You Exercise An Option Without Funds?
Yes, you can still exercise the option without funds on Robinhood. In the case of call options, if you are out of money, you will lose all the premium amount that you have paid for it.
But no matter if you choose to exercise an option in the money or out of money, it is still a better option.
Other than that, when it comes to the automatic exercise of contracts, if there are no funds in the account, Robinhood will not perform any operation on the account and the contract will then expire on the expiration date.
You will have to submit the Do not exercise request before 5 PM on the date of expiration.
Are There Any Fees To Exercise Options On Robinhood?
The best thing about options trading on Robinhood is that there is no contract fee or commission included while selling or buying options. Moreover, you will also not have to pay any assignment or exercise fee on the application. It is completely cost-effective and easy to use for users.
Also Read: What Happens if Robinhood Shuts Down?
So, options trading is a simple and seamless process on Robinhood. We have explained to you options trading on Robinhood in detail. Hopefully, our efforts were worth it. Stay tuned to our website to know more about such topics.