Automatic exercise

Automatic exercise

A protection procedure whereby the Options Clearing Corporation attempts to protect the holder of an expiring in-the-money option by automatically exercising the option on behalf of the holder.

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automatic exercise

Exercise of an in-the-money option following expiration unless the holder issues instructions to the contrary.

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Automatic exercise. If you hold a call option, automatic exercise may occur if the contract is in-the-money by a certain amount.

In this case, an in-the-money contract is one where the strike price -- the price at which you would purchase the underlying instrument if the contract were exercised -- is lower than the market price of that instrument. Generally speaking, exercising your option in this situation would produce a profit on the transaction.

Certain options may be subject to automatic exercise authorized by the Options Clearing Corporation (OCC) unless you instruct them otherwise. Your brokerage firm may also have an automatic exercise policy.