What Happens When Options Expire? Exercise, Assignment and Pin Risk
Reviewed by Leon Moyer - Published October 9, 2026 - Last reviewed October 9, 2026
In this lesson
Predict what happens to a long or short option at expiration, explain exercise by exception and assignment, and recognize pin risk.
For standard U.S. stock options covering 100 shares, an out-of-the-money option normally expires worthless; one at least $0.01 in the money at the close is normally exercised into shares. Contrary instructions can change either outcome. Cash-settled index options and adjusted contracts differ.
What are the deadlines on expiration day?
Standard monthly stock options usually expire on the third Friday of the month; the When Do Options Expire? lesson covers the calendar. On expiration day, most standard U.S. stock options stop trading at 4:00 p.m. Eastern, while some ETF options, such as those on SPY, QQQ and IWM, normally trade until 4:15 p.m. on regular days; check your broker's hours for expiring contracts.
Exercise decisions have a later deadline: FINRA's cutoff is 5:30 p.m. Eastern on a regular trading day, and brokers can set earlier ones. If the expiration Friday is an exchange holiday, expiration moves to the Thursday before. Check your contract and broker.
Expiration day, from the closing bell to assignment
4:00 p.m. ET
Most stock options stop trading
Until 5:30 p.m. ET
Normal decision deadline; broker cutoffs may be earlier
Exercise by exception
OCC exercises options $0.01 or more in the money unless told otherwise
Assignment
Firms allocate to customers; check broker notification
What happens when an option expires in or out of the money?
At expiration, an option is worth only its intrinsic value: the stock price minus the strike for a call, the strike minus the stock price for a put, or zero.
- A long call in the money is normally exercised: you buy 100 shares at the strike and need cash or margin to pay.
- A long put in the money is normally exercised: you sell 100 shares at the strike. Without owned shares, this creates a short stock position if the broker permits it.
- An out-of-the-money option normally expires worthless unless its holder instructs exercise; the buyer loses the premium and the seller keeps it.
What each position turns into at expiration
Long call
ITM: normally exercised; buy 100 shares
OTM: usually expires worthless
Short call
ITM: likely assigned, you deliver 100 shares
OTM: usually expires; assignment still possible
Long put
ITM: normally exercised; sell 100 shares
OTM: usually expires worthless
Short put
ITM: likely assigned, you buy 100 shares
OTM: usually expires; assignment still possible
Gray line: zero, where the position breaks even. Dashed line: strike. Each sketch shows profit or loss at expiration as the stock price rises from left to right.
Worked example
An XYZ 50 call that finishes in the money
You bought one XYZ 50 call for $2.00 ($200). On expiration day XYZ closes at $53, giving $3.00 intrinsic value. Figures exclude fees and assume the stated execution prices.
- Sell to close before 4:00 p.m. at about $3.00 and receive about $300. Profit: $300 - $200 = $100, with no shares and no cash needed.
- Let it be exercised: you buy 100 shares at $50, which takes $5,000 of cash or margin. At Friday's $53 close the shares are worth $5,300, the same $100 profit on paper once the $200 premium is counted.
- The difference is the weekend. You hold the shares, so if XYZ opens Monday at $51, they are worth $5,100, and the whole trade is a $100 loss ($5,100 - $5,000 - $200).
Illustrative and hypothetical. The ticker and prices are invented for teaching, and the figures exclude commissions, fees, margin interest and taxes, which reduce real results. Past or hypothetical outcomes do not indicate future results.
If your account cannot support exercise, the broker may sell the option for you, submit a do-not-exercise instruction (forfeiting its intrinsic value) or liquidate the shares after exercise, and options agreements may authorize such steps. Do not assume the broker will finance delivery or get you a good price; check its expiration policy first.
What is exercise by exception?
Exercise by exception is the OCC's procedure for expiring options: the OCC exercises any expiring option that is in the money by a threshold amount unless the clearing firm instructs otherwise. For equity options in customer accounts, the threshold is $0.01, as the Options Industry Council's exercise FAQ describes.
The procedure runs between OCC and clearing firms, and your broker may apply its own threshold or intervene for account risk. Before its deadline, you can request exercise of an out-of-the-money option or non-exercise of an in-the-money one, rather than assuming the result.
How does assignment work at expiration?
If you are short an option that finishes in the money, expect assignment, though it is not guaranteed. It takes two steps:
- The OCC assigns each exercise, at random, to a clearing firm account that is short that option.
- The firm allocates it to one of its customers who are short, by random selection or first-in, first-out. FINRA Rule 2360 requires each firm to use a fixed, FINRA-approved method and to tell customers in writing which one it uses.
Assignments are based on net positions after the close, so you usually learn of one from your broker the next business day. The Options Industry Council's overview of exercise and assignment adds that some sellers are assigned on options that expire exactly at the money or even out of the money.
What is pin risk?
Pin risk is the uncertainty a seller faces when the stock closes at or very near the strike on expiration day: the option may or may not be exercised, and the seller will not know until assignments arrive. News after the close makes it worse: holders have until their broker's cutoff (5:30 p.m. at the latest) to decide, and a holder may exercise a slightly out-of-the-money option.
Worked example
A short XYZ 45 put pinned near its strike
You sold one XYZ 45 put for $1.00 ($100). On expiration day XYZ closes at $45.05, just above the strike, so the put looks set to expire worthless.
At 4:45 p.m., news drops XYZ to $43.50. A holder exercises before their broker's cutoff, and you are assigned. On Monday you find you bought 100 shares at $45 ($4,500), which assumes the cash was in the account. If XYZ opens at $43.50, the shares are worth $4,350, a $50 loss ($4,350 - $4,500 + $100) before fees instead of the $100 gain expected.
Buying to close before trading ended at an illustrative $0.10 would have cost $10, kept $90 before fees and removed the assignment risk. A near-strike option can cost much more to close, and only a filled order protects you.
Illustrative and hypothetical. The ticker and prices are invented for teaching, and the figures exclude commissions, fees, margin interest and taxes, which reduce real results. Past or hypothetical outcomes do not indicate future results.
A short put's worst case is far larger than this example. If XYZ had fallen to zero, the assigned put would have lost the strike x 100 minus the premium: $4,500 - $100 = $4,400. A short call you do not cover with shares has unlimited risk.
How do you avoid surprises on expiration day?
- Know your broker's cutoff for instructions, and its policy for options you cannot pay to exercise.
- Close anything you do not want to become shares, long or short, before the final close.
- Confirm closing fills on short options you do not want assigned.
- Check the settlement style. Many index options settle in cash rather than shares; the Specialty Modules course covers index options.
Check your understanding
An XYZ 40 put you bought expires with XYZ at $37. You own no XYZ shares and give no instructions. What happens?
Show answer
Normally it is exercised by exception, selling 100 shares at $40 and leaving you short 100 shares. But your broker may block exercise or liquidate the option if the account cannot support short stock; check its policy.
How does the OCC decide which firm is assigned, and how does the firm decide which customer?
Show answer
The OCC assigns exercises to clearing firms at random. Each firm then allocates them to its customers by its own approved method, random or first-in, first-out, which it must disclose in writing.
XYZ stock closes Friday at $45.05 and you are short its 45 put. Why might you still be assigned?
Show answer
Holders can exercise any option until their broker's cutoff after the close. If the stock drops after hours, a holder may exercise a put that closed slightly out of the money. That is pin risk.
Key takeaways
- Out-of-the-money options normally expire worthless, but holders can request exercise.
- Stock options $0.01 or more in the money normally exercise by exception; contrary instructions and broker policies can change that.
- The OCC assigns exercises to firms at random, and firms allocate them to customers by a disclosed method.
- Pin risk arises near a short strike; a filled closing purchase removes that contract's assignment risk.
Common questions
What happens if you don't sell an option before it expires?
An out-of-the-money standard stock option normally expires worthless, and the buyer loses the premium. One at least $0.01 in the money is normally exercised, turning the contract into 100 shares bought or sold at the strike. Instructions and broker policies can change either outcome.
Can you exercise an option after the market closes on expiration day?
Yes, within limits. Trading in standard stock options ends at the 4:00 p.m. Eastern close, but holders can still submit exercise or do-not-exercise instructions until their broker's cutoff, which can be no later than FINRA's 5:30 p.m. Eastern deadline on a regular day. That is why news after the close can change whether a short option is assigned.
What percentage of options expire worthless?
According to the OCC's Options Industry Council, historically about 22% of option contracts expire worthless. More than 72% are closed before expiration, and about 6% are exercised. These historical aggregates do not predict a particular contract's outcome.
Can you be assigned on an out-of-the-money option?
Yes, although it is uncommon. An option holder may exercise any option, and news after the close can move a stock enough to change a holder's decision. The Options Industry Council notes that some sellers are assigned on options that expire at or out of the money.