The procedure that prevents in-the-money equity options from expiring and becoming worthless. In this procedure, the clearing firm will exercise certain kinds of options that are in the money without instruction from the option holder, thus allowing option holders who may not be monitoring an option to still capture a profit. Not all options are subject to automatic exercise. Certain options (known as "capped-style options") become subject to automatic exercise if the price of the underlier hits a certain price (known as the "cap value"), regardless of when the price is achieved (this is only possible in the case of an American-style option). Other options will be subject to automatic exercise just before expiration and at no other time. In such cases, the trigger for automatic exercise is either when the option is in the money, or when it is in the money by a certain amount.
Related information about automatic exercise:
- Automatic Exercise Definition | Investopedia
A procedure implemented to protect an option holder where the Option Clearing Corporation will automatically exercise an "in the money" option for the holder.
- What is automatic exercise? definition and meaning
Definition of automatic exercise: The procedure that prevents in-the-money ... Other options will be subject to automatic exercise just before expiration and at no ...
- Automatic Exercise - Financial Dictionary - The Free Dictionary
A protection procedure whereby the Options Clearing Corporation attempts to protect the holder of an expiring in-the-money option by automatically exercising ...
- Options Exercise
The "exercise by exception" procedure for expiring options described above is sometimes incorrectly referred to as "automatic exercise." It is important to note ...
- New change to options auto-exercise rules. - E*Trade
The Options Clearing Corporation (OCC) rules governing the automatic exercise of in-the-money equity options at expiration are changing. Effective Saturday ...
- Automatic Exercise « OptionsHouse
Automatic Exercise, After-Hours Risk, and Other Options Expiration Issues. Thursday, November 18th, 2010. Obviously, with a name like OptionsHouse, the ...
- Expiration, Exercise and Assignment - CBOE.com
The Options Clearing Corporation has provisions for the automatic exercise of ... However, a specific brokerage firm's threshold for such automatic exercise may ...
- Contrary Option Exercise Instructions
Automatic Exercise All options that are "in-the-money" will be automatically exercised [at expiration]. "At-the-money" options are normally considered ...