Overview

When an options contract reaches its expiry date, or is "in the money" before expiry, specific actions occur: either exercise (for long options) or assignment (for short options). Understanding these processes is crucial for options traders. This article explains how you can exercise options how assignment works at Wealthsimple.

Exercise your long option

If your long option is "in the money" by $0.01 or more on its expiry date, we'll automatically try to exercise it.

You must have the required funds or shares available in your account before 4:00 p.m. ET on the expiry date to exercise your options. If you have the funds or shares to cover the exercise transaction, we'll reserve them in your account after market close on the expiry date, and you can't use them to trade. Standard Wealthsimple instant funds limits also apply to options trading.

• For long call options: Exercising a long call requires the total amount of cash needed to purchase the contracted shares, along with an exercise fee if it's early exercise (it's free if it's auto-exercise). We'll use the balance in your USD account to exercise. If you don't have a USD account, you'll need the CAD equivalent to cover the transaction, and the exchange rate may affect the total cost.
• For long put options: Exercising a long put requires you to have the underlying shares in your account. We'll deduct the exercise fee from the proceeds of the sale of your shares if it's early exercise (no deduction for auto-exercise).

Example: If you have 5 contracts in a position and wish to exercise them:

• For long call options, you'll need enough cash to purchase 500 shares, plus an exercise fee for early exercise (no fee for auto-exercise).
• For long put options, you'll need 500 underlying shares to sell.

If you have insufficient funds for exercising

If you don't have enough funds or shares to exercise all of your "in the money" positions that expire on the same day, we'll exercise your positions in the order in which you opened them. You must have enough funds or shares to fully exercise all the contracts within a position. We don't support partial exercises at this time.

Important notes on corporate actions for exercise

Corporate actions are events and changes that impact shareholders and may affect the options positions you're holding.

• We don't support opening or exercising adjusted contracts involving multi-deliverables, even if the adjusted contract is "in the money". In such cases, you should sell to close your position to avoid your contract expiring worthless.
• If the underlying symbol has gone through a corporate action, the date the adjusted contract is created becomes the new purchase date (which, if applicable, impacts the order in which it will be auto-exercised).

Alternatives to auto-exercising

If you don't want your "in the money" long option to automatically exercise at expiry, there are a few actions you can take:

• Do not exercise instruction: This instruction prevents your long option from automatically exercising if it's "in the money" at expiry. To submit a "do not exercise" instruction, please reach out to our support team before 4:00 p.m. EST on your expiry date.
• Exercising an option early: You can exercise an option before its expiry date. To exercise a long option early, please reach out to our support team before 4:00 p.m. EST. We'll push requests that come in after this time to the following business day.
• Exercising by exception: To exercise an option that is "out of the money" (also known as exercising by exception), please reach out to our support team before 4:00 p.m. EST on your expiry date to stop your long option from expiring worthless.

Assignment of your short option

If your short option is "in the money" by $0.01 or more at 5:30 p.m. ET on its expiry date, you're at risk of assignment. In the case of a covered call, this means you're obligated to deliver 100 shares of the underlying stock after market close on the expiry date.

Wealthsimple runs a random lottery process to determine option assignments the morning after expiry. For covered call assignments, we'll remove shares from client accounts and deposit proceeds of the sale following assignment selection. We release all unassigned shares back to client accounts before the next trading session. Wealthsimple doesn't charge any fees if we assign your option.

Important notes on corporate actions for assignment

Corporate actions are events and changes that impact shareholders and may affect the options positions you are holding.

If you hold a covered call position during a corporate action, there's a risk that your position becomes under-collateralized (or unhedged). This can happen due to fractional splits of the equity position and rounding of the option contract. If this occurs, you are responsible for bringing your account into compliance. You can do this by purchasing additional equity to cover the difference or closing the short option position. If a position remains uncovered after being identified as unhedged, Wealthsimple Investments Inc. (WSII) may close those positions and apply the net proceeds to eliminate or reduce any delinquency.

Related articles

• Enable options trading in your investing account
• Understand options terminology
• Options trading fees and taxes
• Buy a long option
• Sell a long option
• Sell a covered call
• Buy to close a covered call
• Manage and close options positions
• Use auto-sell for options
• Trade options in a margin account