Automatic exercise

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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

The exercise of an in-the-money option without the holder's express authorization. That is, automatic exercise occurs at a certain point when the option is in-the-money even though the holder has not specifically requested the exercise. The Options Clearing Corporation practices automatic exercise when clearing option contracts, unless a holder requests otherwise.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

automatic exercise

Exercise of an in-the-money option following expiration unless the holder issues instructions to the contrary.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
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