Hello, Im newer to options and my first call trades are set to expire this week with the strike price being ~$10 below the market price. Problem is I def dont have enough cash to buy 100 shares at ~$160 even if I can sell them for $170+. I also dont see any margin power listed anywhere.
I was wondering if anyone uses Webull and know if the assignment means theyll buy and sell the stock and give me the difference or if theyll liquidate my option at market close?
Posted by khanondrum
4 Comments
You’ll want to sell to close your call option, not exercise.
If you are long in a call option the broker will close the position automatically close expiration if you do not have the buying power to exercise the option. You can also sell to close yourself very close to the expiration date if your goal is to capitalise on the gains. If you want to hold the underlying for long term exercising the option you should deposit the money in your account before the expiration.
If you are long in a call option the broker will close the position automatically close to expiration if you do not have the buying power to exercise the option and/or you haven’t toggle the automatic exercising if ITM. I believe the default broker action is to liquidate the position unless instructed otherwise. You can also sell to close yourself very close to the expiration date if your goal is to capitalise on the gains. If you want to hold the underlying for long term exercising the option, you should deposit the money in your account before the expiration.
OP, how does your broker know you want SELL stocks, CLOSE option, or even not-exercise your current BUY position.
do spend time on understanding how Options settlement works, here is a quick response from GPT.
## Option Settlement: A Breakdown
**Option settlement** refers to the process of fulfilling the terms of an options contract when it expires or is exercised. This typically involves the exchange of the underlying asset or a cash payment between the option holder and the option writer.
### Two Primary Settlement Methods:
1. **Physical Settlement:**
* Involves the actual delivery of the underlying asset.
* For example, if a call option on a stock is exercised, the option holder receives the shares of the stock from the option writer at the strike price.
* Most stock and ETF options are physically settled.
2. **Cash Settlement:**
* Involves a cash payment instead of the underlying asset.
* The amount of the cash payment is determined by the difference between the strike price and the market price of the underlying asset at expiration.
* Index options and many commodity options are cash-settled.
### Factors Affecting Settlement:
* **Option Style:** American options can be exercised anytime before expiration, while European options can only be exercised at expiration.
* **Option Type:** Call options give the holder the right to buy, while put options give the holder the right to sell.
* **Underlying Asset:** The specific asset underlying the option will influence the settlement process.
### Importance of Understanding Settlement:
* **Risk Management:** Knowing the settlement method can help investors manage their risk exposure.
* **Tax Implications:** The settlement method can affect the tax consequences of exercising or assigning options.
* **Portfolio Strategy:** Understanding settlement can help investors make informed decisions about their investment strategies.
**Would you like to know more about a specific aspect of option settlement, such as cash settlement calculations or the tax implications of option exercise?**
PS: Cash settlement is available (only route) for few index options like SPX, things that you can not hold.