What Does Automatic Exercise Mean in Options Trading?

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Upon expiration, all options that are in the money by $0.01 or more will be subject to automatic exercise by the Options Clearing Corporation (OCC). However, it's important to consult with your individual broker to determine their in-house automatic exercise thresholds, which may differ from the OCC standard.

Despite the name, "automatic" exercise is not entirely out of your hands. If you'd prefer that an in-the-money option not be exercised upon expiration, you can provide alternate instructions to your broker. These instructions will take precedence over any automatic exercise procedures. In other words, automatic exercise only takes place in the absence of alternate instructions from the option holder.

Remember that you're also free to take action to exit your option position at any time prior to expiration, whether you'd prefer to exercise or sell to close. For more information about your other alternatives, check out Exiting an Option Trade and Options Expiration, Assignment, and Exercise.

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