etrade option assignment

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If my put option reaches expiration on etrade and I don't log in to the site will it automatically exercise if it's in the money or be a total loss?

I ask because suppose you don't manually exercise and expiration day hits and it's in the money..do you lose it all or is the in the money gain automatically credited to your account?

option-exercise

10 Have you tried asking etrade? – Dilip Sarwate Commented Apr 18, 2012 at 16:27

2 Answers 2

There are a number of choices:

The broker can execute and immediately buy the stock to close the position
The Put gets executed and you wake up Monday to a short position and possibly a margin call
The put was not sufficiently in the money for either of the above to occur automatically.

I prefer Dilip's response "Have you tried asking etrade?" No offense, but questions about how a particular broker handles certain situations are best asked of the broker.

Last - one should never enter into any trade (especially options trades) without understanding the process in advance. I hope you are asking this before trading.

I have held an in the money long position on an option into expiration, on etrade, and nothing happened. (Scalping expiring options - high risk)

The option expired a penny or two ITM, and was not worth exercising, nor did I have the purchasing power to exercise it. (AAPL)

From etrade's website :

Here are a few things to keep in mind about exercises and assignments: Equity options $0.01 or more in the money will be automatically exercised for you unless you instruct us not to exercise them. For example, a September $25 call will be automatically exercised if the underlying security's closing price is $25.01 or higher at expiration. If the closing price is below $25.01, you would need to call an E*TRADE Securities broker at 1-800-ETRADE-1 with specific instructions for exercising the option. You would also need to call an E*TRADE Securities broker if the closing price is higher than $25.01 at expiration and you do not wish to exercise the call option. Index options $0.01 or more in the money will be automatically exercised for you unless you instruct us not to exercise them. Options that are out of the money will expire worthless. You may request to exercise American style options anytime prior to expiration. A request not to exercise options may be made only on the last trading day prior to expiration. If you'd like to exercise options or submit do-not-exercise instructions, call an E*TRADE Securities broker at 1-800-ETRADE-1. You won't be charged our normal fee for broker-assisted trades, but the regular options commission will apply. Requests are processed on a best-efforts basis. When equity options are exercised or assigned, you'll receive a Smart Alert message letting you know. You can also check View Orders to see which stock you bought or sold, the number of shares, and the strike price. Notes: If you do not have sufficient purchasing power in your account to accept the assignment or exercise, your expiring options positions may be closed, without notification, on the last trading day for the specific options series. Additionally, if your expiring position is not closed and you do not have sufficient purchasing power, E*TRADE Securities may submit do-not-exercise instructions without notification. Find out more about options expiration dates.

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Ready for Options Trading? Make Sure You Understand Assignment First

Your first assignment: decoding this important options term before you start trading.

The options market can seem to have a language of its own. To the average investor, there are likely a number of unfamiliar terms, but for an individual with a short options position—someone who has sold call or put options—there is perhaps no term more important than " assignment "—the fulfilling of the requirements of an options contract.

When someone buys options to open a new position ("Buy to Open"), they are buying a right —either the right to buy the underlying security at a specified price (the strike price) in the case of a call option, or the right to sell the underlying security in the case of a put option.

A young person wearing headphones works with a laptop, pencil, and paper.

Image source: Getty Images

On the flip side, when an individual sells, or writes, an option to open a new position ("Sell to Open"), they are accepting an obligation —either an obligation to sell the underlying security at the strike price in the case of a call option or the obligation to buy that security in the case of a put option. When an individual sells options to open a new position, they are said to be "short" those options. The seller does this in exchange for receiving the option's premium from the buyer.

American-style options allow the buyer of a contract to exercise at any time during the life of the contract, whereas European-style options can be exercised only during a specified period just prior to expiration. For an investor selling American-style options, one of the risks is that the investor may be called upon at any time during the contract's term to fulfill its obligations. That is, as long as a short options position remains open, the seller may be subject to "assignment" on any day equity markets are open.

What is assignment?

An option assignment represents the seller's obligation to fulfill the terms of the contract by either selling or buying the underlying security at the exercise price. This obligation is triggered when the buyer of an option contract exercises their right to buy or sell the underlying security.

To ensure fairness in the distribution of American-style and European-style option assignments, the Options Clearing Corporation (OCC), which is the options industry clearing house, has an established process to randomly assign exercise notices to firms with an account that has a short option position. Once a firm receives an assignment, it then assigns this notice to one of its customers who has a short option contract of the same series. This short option contract is selected from a pool of such customers, either at random or by some other procedure specific to the brokerage firm.

How does an investor know if an option position will be assigned?

While an option seller will always have some level of uncertainty, being assigned may be a somewhat predictable event. Only about 7% of options positions are typically exercised, but that does not imply that investors can expect to be assigned on only 7% of their short positions. Investors may have some, all or none of their short positions assigned.

And while the majority of American-style options exercises (and assignments) happen on or near the contract's expiration, a long options holder can exercise their right at any time, even if the underlying security is halted for trading. Someone may exercise their options early based upon a significant price movement in the underlying security or if shares become difficult to borrow as the result of a pending corporate action such as a buyout or takeover.

Note: European-style options can only be exercised during a specified period just prior to expiration. In U.S. markets, the majority of options on commodity and index futures are European-style, while options on stocks and exchange-traded funds (ETF) are American-style. So, while SPDR S&P 500 , or SPY options, which are options tied to an ETF that tracks the S&P 500, are American-style options, S&P 500 Index options, or SPX options, which are tied to S&P 500 futures contracts, are European-style options.

What happens after an option is assigned?

An investor who is assigned on a short option position is required to meet the terms of the written option contract upon receiving notification of the assignment. In the case of a short equity call, the seller of the option must deliver stock at the strike price and in return receives cash. An investor who doesn't already own the shares will need to acquire and deliver shares in return for cash in the amount of the strike price, multiplied by 100, since each contract represents 100 shares. In the case of a short equity put, the seller of the option is required to purchase the stock at the strike price.

How might an investor's account balance fluctuate after opening a short options position?

It is normal to see an account balance fluctuate after opening a short option position. Investors who have questions or concerns or who do not understand reported trade balances and assets valuations should contact their brokerage firm immediately for an explanation. Please keep in mind that short option positions can incur substantial risk in certain situations.

What does "XYZ July 50" mean? XYZ = the ticker symbol of the security July = the month when the option will expire 50 = $50, the strike price on the option

For example, say XYZ stock is trading at $40 and an investor sells 10 contracts for XYZ July 50 calls at $1.00, collecting a premium of $1,000, since each contract represents 100 shares ($1.00 premium x 10 contracts x 100 shares). Consider what happens if XYZ stock increases to $60, the call is exercised by the option holder and the investor is assigned. Should the investor not own the stock, they must now acquire and deliver 1,000 shares of XYZ at a price of $50 per share. Given the current stock price of $60, the investor's short stock position would result in an unrealized loss of $9,000 (a $10,000 loss from delivering shares $10 below current stock price minus the $1,000 premium collected earlier).

Note: Even if the investor's short call position had not been assigned, the investor's account balance in this example would still be negatively affected—at least until the options expire if they are not exercised. The investor's account position would be updated to reflect the investor's unrealized loss—what they could lose if an option is exercised (and they are assigned) at the current market price. This update does not represent an actual loss (or gain) until the option is actually exercised and the investor is assigned.

What happens if an investor opened a multi-leg strategy, but one leg is assigned?

American-style option holders have the right to exercise their options position prior to expiration regardless of whether the options are in-, at- or out-of-the-money. Investors can be assigned if any market participant holding calls or puts of the same series submits an exercise notice to their brokerage firm. When one leg is assigned, subsequent action may be required, which could include closing or adjusting the remaining position to avoid potential capital or margin implications resulting from the assignment. These actions may not be attractive and may result in a loss or a less-than-ideal gain.

If an investor's short option is assigned, the investor will be required to perform in accordance with their obligation to purchase or deliver the underlying security, regardless of the overall risk of their position when taking into account other options that may be owned as part of the overall multi-leg strategy. If the investor owns an option that serves to limit the risk of the overall spread position, it is up to the investor to exercise that option or to take other action to limit risk.

Below are a couple of examples that underscore how important it is for every investor to understand the risks associated with potential assignment during market hours and potentially adverse price movements in afterhours trading.

Example #1: An investor is short March 50 XYZ puts and long March 55 XYZ puts. At the close of business on March expiration, XYZ is priced at $56 per share, and both puts are out of the money, which means they have no intrinsic value. However, due to an unexpected news announcement shortly after the closing bell, the price of XYZ drops to $40 in after-hours trading. This could result in an assignment of the short March 50 puts, requiring the investor to purchase shares of XYZ at $50 per share. The investor would have needed to exercise the long March 55 puts in order to realize the gain on the initial multi-leg position. If the investor did not exercise the March 55 puts, those puts may expire and the investor may be exposed to the loss on the XYZ purchase at $50, a $10 per share loss with XYZ now trading at $40 per share, without receiving the benefit of selling XYZ at $55.

Example #2: An investor is short March 50 XYZ puts and long April 50 XYZ puts. At the close of business on March expiration, XYZ is priced at $45 per share, and the investor is assigned XYZ stock at $50. The investor will now own shares of XYZ at $50, along with the April 50 XYZ puts, which may be exercised at the investor's discretion. If the investor chooses not to exercise the April 50 puts, they will be required to pay for the shares that were assigned to them on the short March 50 XYZ puts until the April 50 puts are exercised or shares are otherwise disposed of.

Note: In either example, the short put position may be assigned prior to expiration at the discretion of the option holder. Investors can check with their brokerage firm regarding their option exercise procedures and cut-off times.

For options-specific questions, you may contact OCC's Investor Education team at [email protected] , via chat on OptionsEducation.org or subscribe to the OIC newsletter . If you have questions about options trading in your brokerage account, we encourage you to contact your brokerage firm. If after doing so you have not resolved the issue or have additional concerns, you can contact FINRA .

Subscribe to FINRA's newsletter for more information about saving and investing.

FINRA Staff has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

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The Mechanics of Option Trading, Exercise, and Assignment

Options were originally traded in the over-the-counter ( OTC ) market , where the terms of the contract were negotiated. The advantage of the OTC market over the exchanges is that the option contracts can be tailored: strike prices, expiration dates, and the number of shares can be specified to meet the needs of the option buyer. However, transaction costs are greater and liquidity is less.

Option trading really took off when the first listed option exchange — the Chicago Board Options Exchange ( CBOE )— was organized in 1973 to trade standardized contracts, greatly increasing the market and liquidity of options. The CBOE was the original exchange for options, but, by 2003, it has been superseded in size by the electronic Nasdaq International Securities Exchange (ISE), based in New York. Most options sold in Europe are traded through electronic exchanges. Other exchanges for options in the United States include: New York Stock Exchange , and the NASDAQtrader.com .

Option exchanges are central to the trading of options:

they establish the terms of the standardized contracts
they provide the infrastructure — both hardware and software — to facilitate trading, which is increasingly computerized
they link together investors, brokers, and dealers on a centralized system, so that traders get the best bid/ask prices
they guarantee trades by taking the opposite side of each transaction
they establish the trading rules and procedures

Options are traded just like stocks — the buyer buys at the ask price and the seller sells at the bid price . The settlement time for option trades is 1 business day ( T+1 ). However, to trade options, an investor must have a brokerage account and be approved for trading options and must also receive a copy of the booklet Characteristics and Risks of Standardized Options .

The option holder, unlike the holder of the underlying stock, has no voting rights in the corporation, and is not entitled to any dividends. Brokerage commissions are still charged for options even though the commissions for stocks have been free for a while. Prices for most options range from $0.65 to $1 per contract .

The Options Clearing Corporation (OCC)

The Options Clearing Corporation ( OCC ) is the counterparty to all option trades. The OCC issues, guarantees, and clears all option trades involving its member firms, including all U.S. option exchanges, and ensures that sales are transacted according to the current rules. The OCC is jointly owned by its member firms — the exchanges that trade options — and issues all listed options, and controls and effects all exercises and assignments. To provide a liquid market, the OCC guarantees all trades by acting as the other party to all purchases and sales of options.

The OCC, like other clearing companies, is the direct participant in every purchase and sale of an option contract. When an option writer or holder sells his contracts to someone else, the OCC serves as an intermediary in the transaction. The option writer sells his contract to the OCC and the option buyer buys it from the OCC.

The OCC publishes statistics, news on options, and any notifications about changes in the trading rules, or the adjustment of certain option contracts because of a stock split or that were subjected to unusual circumstances, such as a merger of companies whose stock was the underlying security to the option contracts.

The OCC operates under the jurisdiction of both the Securities and Exchange Commission ( SEC ) and the Commodities Futures Trading Commission ( CFTC ). Under its SEC jurisdiction, OCC clears transactions for put and call options on common stocks and other equity issues, stock indexes, foreign currencies, interest rate composites and single-stock futures . As a registered Derivatives Clearing Organization ( DCO ) under CFTC jurisdiction, the OCC clears and settles transactions in futures and options on futures .

The Exercise of Options by Option Holders and the Assignment to Fulfill the Contract to Option Writers

When an option holder wants to exercise his option, he must notify his broker of the exercise, and if it is the last trading day for the option, the broker must be notified before the exercise cut-off time , which will probably be earlier than on trading days before the last day, and the cut-off time may differ for different option classes or for index options. Although policies differ among brokerages, it is the duty of the option holder to notify his broker to exercise the option before the cut-off time.

When the broker is notified, then the exercise instructions are sent to the OCC, which then assigns the exercise to one of its Clearing Members who are short in the same option series as is being exercised. The Clearing Member will then assign the exercise to one of its customers who is short in the option. The customer is selected by a specific procedure, usually on a first-in, first-out basis, or some other fair procedure approved by the exchanges. Thus, there is no direct connection between an option writer and a buyer.

To ensure contract performance, option writers are required to post margin, the amount depending on how much the option is in the money. If the margin is deemed insufficient, then the option writer will be subjected to a margin call. Option holders don't need to post margin because they will only exercise the option if it is in the money. Options, unlike stocks, cannot be bought on margin.

Because the OCC is always a party to an option transaction, an option writer can close out his position by buying the same contract back, even while the contract buyer retains his position, because the OCC draws from a pool of contracts with no connection to the original contract writer and buyer.

A diagram outlining the exercise and assignment of a call.

Example: No Direct Connection between Investors Who Write Options and those Who Buy Them

John Call-Writer writes an option that legally obligates him to provide 100 shares of JXYZ for the price of $30 until April. The OCC buys the contract, adding it to the millions of other option contracts in its pool. Sarah Call-Buyer buys a contract that has the same terms that John Call-Writer wrote — in other words, it belongs to the same option series . However, option contracts have no name on them. Sarah buys from the OCC, just as John sold to the OCC, and she just gets a contract giving her the right to buy 100 shares of JXYZ for $30 per share until April.

Scenario 1 — Exercises of Options are Assigned According to Specific Procedures

In February, the price of JXYZ rises to $35, and Sarah thinks it might go higher in the long run, but since March and April generally are volatile times for most stocks, she decides to exercise her call (sometimes called calling the stock ) to buy JXYZ stock at $30 per share to hold the stock indefinitely. She instructs her broker to exercise her call; her broker forwards the instructions to the OCC, which then assigns the exercise to one of its participating members who provided the call for sale; the participating member, in turn, assigns it to an investor who wrote such a call; in this case, it happened to be John's brother, Sam Call-Writer. John got lucky this time. Sam, unfortunately, either must turn over his appreciated shares of JXYZ, or he'll have to buy them in the open market to provide them. This is the risk that an option writer must take — an option writer never knows when he'll be assigned an exercise when the option is in the money.

Scenario 2 — Closing Out an Option Position by Buying Back the Contract

John Call-Writer decides that JXYZ might climb higher in the coming months, and so decides to close out his short position by buying a call contract with the same terms that he wrote — one that is in the same option series. Sarah, on the other hand, decides to maintain her long position by keeping her call contract until April. This can happen because there are no names on the option contracts. John closes his short position by buying the call back from the OCC at the market price, which may be higher or lower than what he paid, resulting in either a profit or a loss. Sarah can keep her contract because when she sells or exercises her contract, it will be with the OCC, not with John, and Sarah can be sure that the OCC will fulfill the terms of the contract if she exercises it later.

Thus, the OCC allows each investor to act independently of the other .

When the assigned option writer must deliver stock, she can deliver stock already owned, buy it on the market for delivery, or ask her broker to go short on the stock and deliver the borrowed shares. However, finding borrowed shares to short may not always be possible, so this method may not be available.

If the assigned call writer buys the stock in the market for delivery, the writer only needs the cash in his brokerage account to pay for the difference between what the stock cost and the strike price of the call, since the writer will immediately receive cash from the call holder for the strike price. Similarly, if the writer is using margin, then the margin requirements apply only to the difference between the purchase price and the strike price of the option. Full margin requirements, however, apply to shorted stock.

An assigned put writer will need either the cash or the margin to buy the stock at the strike price, even if he intends to sell the stock immediately after the exercise of the put. When the call holder exercises, he can keep the stock or immediately sell it. However, he must have the margin, if he has a margin account, or cash, for a cash account, to pay for the stock, even if he sells it immediately. He can also use the delivered stock to cover a short in the stock. (Note: equity requirements differ because an assigned call writer immediately receives the cash upon delivery of the shares, whereas a put writer or a call holder who purchased the shares may decide to keep the stock.)

Example: Fulfilling a Naked Call Exercise

A call writer receives an exercise notice on 10 call contracts with a strike of $30 per share on JXYZ stock on which she is still short. The stock currently trades at $35 per share. She does not own the stock, so, to fulfill her contract, she must buy 1,000 shares of stock in the market for $35,000 then sell it for $30,000, resulting in an immediate loss of $5,000 minus the commissions of the stock purchase and assignment.

Both the exercise and assignment incur brokerage commissions for both holder and assigned writer. Generally, the commission is smaller to sell the option than it is to exercise it. However, there may be no choice if it is the last day of trading before expiration. Both the buying and selling of options and the exercise or assignment are settled in 1 business day after the trade ( T+1 ).

Often, a writer will want to cover his short by buying the written option back on the open market. However, once he receives an assignment, then it is too late to cover his short position by closing the position with a purchase. Assignment is usually selected from writers still short at the end of the trading day. A possible assignment can be anticipated if the option is in the money at expiration, the option is trading at a discount, or the underlying stock is about to pay a large dividend.

The OCC automatically exercises any option that is in the money by at least $0.01 ( automatic exercise , Exercise-by-Exception , Ex-by-Ex ), unless notified by the broker not to. A customer may not want to exercise an option that is only slightly in the money if the transaction costs would exceed the net profit from the exercise. Despite the automatic exercise by the OCC, the option holder should notify his broker by the exercise cut-off time , which may be before the end of the trading day, of an intent to exercise. Exact procedures depend on the broker.

Any option that is sold on the last trading day before expiration would likely be bought by a market maker. Because a market maker's transaction costs are lower than for retail customers, a market maker may exercise an option even if it is only a few cents in the money. Thus, any option writer who does not want to be assigned should close out his position before expiration day if there is any chance that it will be in the money even by a few pennies.

Early Exercise

Sometimes, an option will be exercised before its expiration day — called early exercise , or premature exercise . Because options have a time value in addition to intrinsic value, most options are not exercised early. However, there is nothing to prevent someone from exercising an option, even if it is not profitable to do so, and sometimes it does occur, which is why anyone who is short an option should expect the possibility of being assigned early.

When an option is trading below parity (below its intrinsic value), then arbitrageurs can take advantage of the discount to profit from the difference, because their transaction costs are very low. An option with a high intrinsic value will have little time value, and so, because of the difference between supply and demand in the market at any given moment, the option could be trading for less than its true worth. An arbitrageur will almost certainly take advantage of the price discrepancy for an instant profit. Anyone who is short an option with a high intrinsic value should expect a good possibility of being assigned an exercise.

Example: Early Exercise by Arbitrageurs Profiting from an Option Discount

JXYZ stock is currently at $40 per share. Calls on the stock with a strike of $30 are selling for $9.80. This is a difference of $0.20 per share, enough of a difference for an arbitrageur, whose transaction costs are typically much lower than for a retail customer, to profit immediately by selling short the stock at $40 per share, then covering his short by exercising the call for a net of $0.20 per share minus the arbitrageur's small transaction costs.

Option discounts will only occur when the time value of the option is small, because either it is deep in the money or the option will soon expire.

Option Discounts Arising from an Imminent Dividend Payment on the Underlying Stock

When a large dividend is paid by the underlying stock, its price drops on the ex-dividend date, resulting in a lower value for the calls. The stock price may remain lower after the payment, because the dividend payment lowers the book value of the company. This causes many call holders to either exercise early to collect the dividend, or to sell the call before the drop in stock price. When many call holders sell at once, the calls sell at a discount to the underlying, creating opportunities for arbitrageurs to profit from the price difference. However, there is risk the transaction will lose money, because the dividend payment and drop in stock price may not equal the premium paid for the call, even if the dividend exceeds the time value of the call.

Example: Arbitrage Profit/Loss Scenario for a Dividend-Paying Stock

JXYZ stock is currently trading at $40 per share and will pay a dividend of $1 the next day. A call with a $30 strike is selling for $10.20, the $0.20 being the time value of the premium. So an arbitrageur decides to buy the call and exercise it to collect the dividend. Since the dividend is $1, but the time value is only $0.20, this could lead to a profit of $0.80 per share, but on the ex-dividend date, the stock drops to $39. Adding the $1 dividend to the share price yields $40, which is still less than buying the stock for $30 + $10.20 for the call. It might be profitable if the stock does not drop as much on the ex-date or it recovers after the ex-date sufficiently to make it profitable. But this is a risk for the arbitrageur, and this transaction is, thus, known as risk arbitrage , because the profit is not guaranteed.

2019 Statistics for the Fate of Options

Data Source: https://www.optionseducation.org/referencelibrary/faq/options-exercise

All option writers who didn't close out their position earlier by buying an offsetting contract made the maximum profit — the premium — on those contracts that expired. Option writers have lost at least something when the option is exercised, because the option holder wouldn't exercise it unless it was in the money. The more the exercised option was in the money, the greater the loss is for the assigned option writer and the greater the profits for the option holder. A closed out transaction could be at a profit or a loss for both holders and writers of options, but closing out a transaction is usually done either to maximize profits or to minimize losses, based on expected changes in the price of the underlying security until expiration.

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Options Exercise, Assignment, and More: A Beginner's Guide

So your trading account has gotten options approval, and you recently made that first trade—say, a long call in XYZ with a strike price of $105. Then expiration day approaches and, at the time, XYZ is trading at $105.30.

Wait. The stock's above the strike. Is that in the money 1 (ITM) or out of the money 2 (OTM)? Do I need to do something? Do I have enough money in my account? Help!

Don't be that trader. The time to learn the mechanics of options expiration is before you make your first trade.

Here's a guide to help you navigate options exercise 3 and assignment 4 —along with a few other basics.

In the money or out of the money?

The buyer ("owner") of an option has the right, but not the obligation, to exercise the option on or before expiration. A call option 5 gives the owner the right to buy the underlying security; a put option 6 gives the owner the right to sell the underlying security.

Conversely, when you sell an option, you may be assigned—at any time regardless of the ITM amount—if the option owner chooses to exercise. The option seller has no control over assignment and no certainty as to when it could happen. Once the assignment notice is delivered, it's too late to close the position and the option seller must fulfill the terms of the options contract:

A long call exercise results in buying the underlying stock at the strike price.
A short call assignment results in selling the underlying stock at the strike price.
A long put exercise results in selling the underlying stock at the strike price.
A short put assignment results in buying the underlying stock at the strike price.

An option will likely be exercised if it's in the option owner's best interest to do so, meaning it's optimal to take or to close a position in the underlying security at the strike price rather than at the current market price. After the market close on expiration day, ITM options may be automatically exercised, whereas OTM options are not and typically expire worthless (often referred to as being "abandoned"). The table below spells it out.

If the underlying stock price is...
...higher than the strike price
...lower than the strike price
If the underlying stock price is... A long call is... -->
...higher than the strike price ...ITM and typically exercised -->
...lower than the strike price ...OTM and typically abandoned -->
If the underlying stock price is... A short call is... -->
...higher than the strike price ...ITM and typically assigned -->
If the underlying stock price is... A long put is... -->
...higher than the strike price ...OTM and typically abandoned -->
...lower than the strike price ...ITM and typically exercised -->
If the underlying stock price is... A short put is... -->
...lower than the strike price ...ITM and typically assigned -->

The guidelines in the table assume a position is held all the way through expiration. Of course, you typically don't need to do that. And in many cases, the usual strategy is to close out a position ahead of the expiration date. We'll revisit the close-or-hold decision in the next section and look at ways to do that. But assuming you do carry the options position until the end, there are a few things you need to consider:

Know your specs . Each standard equity options contract controls 100 shares of the underlying stock. That's pretty straightforward. Non-standard options may have different deliverables. Non-standard options can represent a different number of shares, shares of more than one company stock, or underlying shares and cash. Other products—such as index options or options on futures—have different contract specs.
Stock and options positions will match and close . Suppose you're long 300 shares of XYZ and short one ITM call that's assigned. Because the call is deliverable into 100 shares, you'll be left with 200 shares of XYZ if the option is assigned, plus the cash from selling 100 shares at the strike price.
It's automatic, for the most part . If an option is ITM by as little as $0.01 at expiration, it will automatically be exercised for the buyer and assigned to a seller. However, there's something called a do not exercise (DNE) request that a long option holder can submit if they want to abandon an option. In such a case, it's possible that a short ITM position might not be assigned. For more, see the note below on pin risk 7 ?
You'd better have enough cash . If an option on XYZ is exercised or assigned and you are "uncovered" (you don't have an existing long or short position in the underlying security), a long or short position in the underlying stock will replace the options. A long call or short put will result in a long position in XYZ; a short call or long put will result in a short position in XYZ. For long stock positions, you need to have enough cash to cover the purchase or else you'll be issued a margin 8 call, which you must meet by adding funds to your account. But that timeline may be short, and the broker, at its discretion, has the right to liquidate positions in your account to meet a margin call 9 . If exercise or assignment involves taking a short stock position, you need a margin account and sufficient funds in the account to cover the margin requirement.
Short equity positions are risky business . An uncovered short call or long put, if assigned or exercised, will result in a short stock position. If you're short a stock, you have potentially unlimited risk because there's theoretically no limit to the potential price increase of the underlying stock. There's also no guarantee the brokerage firm can continue to maintain that short position for an unlimited time period. So, if you're a newbie, it's generally inadvisable to carry an options position into expiration if there's a chance you might end up with a short stock position.

A note on pin risk : It's not common, but occasionally a stock settles right on a strike price at expiration. So, if you were short the 105-strike calls and XYZ settled at exactly $105, there would be no automatic assignment, but depending on the actions taken by the option holder, you may or may not be assigned—and you may not be able to trade out of any unwanted positions until the next business day.

But it goes beyond the exact price issue. What if an option is ITM as of the market close, but news comes out after the close (but before the exercise decision deadline) that sends the stock price up or down through the strike price? Remember: The owner of the option could submit a DNE request.

The uncertainty and potential exposure when a stock price and the strike price are the same at expiration is called pin risk. The best way to avoid it is to close the position before expiration.

The decision tree: How to approach expiration

As expiration approaches, you have three choices. Depending on the circumstances—and your objectives and risk tolerance—any of these might be the best decision for you.

1. Let the chips fall where they may. Some positions may not require as much maintenance. An options position that's deeply OTM will likely go away on its own, but occasionally an option that's been left for dead springs back to life. If it's a long option, the unexpected turn of events might feel like a windfall; if it's a short option that could've been closed out for a penny or two, you might be kicking yourself for not doing so.

Conversely, you might have a covered call (a short call against long stock), and the strike price was your exit target. For example, if you bought XYZ at $100 and sold the 110-strike call against it, and XYZ rallies to $113, you might be content selling the stock at the $110 strike price to monetize the $10 profit (plus the premium you took in when you sold the call but minus any transaction fees). In that case, you can let assignment happen. But remember, assignment is likely in this scenario, but it is not guaranteed.

2. Close it out . If you've met your objectives for a trade, then it might be time to close it out. Otherwise, you might be exposed to risks that aren't commensurate with any added return potential (like the short option that could've been closed out for next to nothing, then suddenly came back into play). Keep in mind, there is no guarantee that there will be an active market for an options contract, so it is possible to end up stuck and unable to close an options position.

The close-it-out category also includes ITM options that could result in an unwanted long or short stock position or the calling away of a stock you didn't want to part with. And remember to watch the dividend calendar. If you're short a call option near the ex-dividend date of a stock, the position might be a candidate for early exercise. If so, you may want to consider getting out of the option position well in advance—perhaps a week or more.

3. Roll it to something else . Rolling, which is essentially two trades executed as a spread, is the third choice. One leg closes out the existing option; the other leg initiates a new position. For example, suppose you're short a covered call on XYZ at the July 105 strike, the stock is at $103, and the call's about to expire. You could attempt to roll it to the August 105 strike. Or, if your strategy is to sell a call that's $5 OTM, you might roll to the August 108 call. Keep in mind that rolling strategies include multiple contract fees, which may impact any potential return.

The bottom line on options expiration

You don't enter an intersection and then check to see if it's clear. You don't jump out of an airplane and then test the rip cord. So do yourself a favor. Get comfortable with the mechanics of options expiration before making your first trade.

1 Describes an option with intrinsic value (not just time value). A call option is in the money (ITM) if the stock price is above the strike price. A put option is ITM if the stock price is below the strike price. For calls, it's any strike lower than the price of the underlying equity. For puts, it's any strike that's higher.

2 Describes an option with no intrinsic value. A call option is out of the money (OTM) if its strike price is above the price of the underlying stock. A put option is OTM if its strike price is below the price of the underlying stock.

3 An options contract gives the owner the right but not the obligation to buy (in the case of a call) or sell (in the case of a put) the underlying security at the strike price, on or before the option's expiration date. When the owner claims the right (i.e. takes a long or short position in the underlying security) that's known as exercising the option.

4 Assignment happens when someone who is short a call or put is forced to sell (in the case of the call) or buy (in the case of a put) the underlying stock. For every option trade there is a buyer and a seller; in other words, for anyone short an option, there is someone out there on the long side who could exercise.

5 A call option gives the owner the right, but not the obligation, to buy shares of stock or other underlying asset at the options contract's strike price within a specific time period. The seller of the call is obligated to deliver, or sell, the underlying stock at the strike price if the owner of the call exercises the option.

6 Gives the owner the right, but not the obligation, to sell shares of stock or other underlying assets at the options contract's strike price within a specific time period. The put seller is obligated to purchase the underlying security at the strike price if the owner of the put exercises the option.

7 When the stock settles right at the strike price at expiration.

8 Margin is borrowed money that's used to buy stocks or other securities. In margin trading, a brokerage firm lends an account owner a portion of the purchase price (typically 30% to 50% of the total price). The loan in the margin account is collateralized by the stock, and if the value of the stock drops below a certain level, the owner will be asked to deposit marginable securities and/or cash into the account or to sell/close out security positions in the account.

9 A margin call is issued when your account value drops below the maintenance requirements on a security or securities due to a drop in the market value of a security or when a customer exceeds their buying power. Margin calls may be met by depositing funds, selling stock, or depositing securities. Charles Schwab may forcibly liquidate all or part of your account without prior notice, regardless of your intent to satisfy a margin call, in the interests of both parties.

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Trading Options: Understanding Assignment

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Options trading carries risk and requires specific approval from an investor's brokerage firm. For information about the inherent risks and characteristics of the options market, refer to the Characteristics and Risks of Standardized Options also known as the Options Disclosure Document (ODD).

Learn more about options from FINRA or access free courses like Options 101 at OCC Learning .

What is assignment?

How does an investor know if an option position will be assigned?

Note: European-style options can only be exercised during a specified period just prior to expiration. In U.S. markets, the majority of options on commodity and index futures are European-style, while options on stocks and exchange-traded funds (ETF) are American-style. So, while SPDR S&P 500, or SPY options, which are options tied to an ETF that tracks the S&P 500, are American-style options, S&P 500 Index options, or SPX options, which are tied to S&P 500 futures contracts, are European-style options.

What happens after an option is assigned?

How might an investor's account balance fluctuate after opening a short options position?

What happens if an investor opened a multi-leg strategy, but one leg is assigned?

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How to Trade Options in 5 Steps

1. assess your readiness, 2. choose a broker and get approved to trade options, 3. create a trading plan, 4. understand the tax implications, 5. keep learning and managing risk, pros and cons of trading options, buying calls (long calls), buying puts (long puts), covered calls, protective puts, long straddles, other options strategies, the bottom line, options trading: how to trade stock options in 5 steps.

Investing: An Introduction
Stock Market Definition
Primary and Secondary Markets
How to Buy/Sell Stocks
Market Hours
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How to Start Investing in Stocks: A Beginner’s Guide
What Owning a Stock Means
The Basics of Order Types
Position Sizing
Executing Trades
When to Sell a Stock
Income, Value, Growth Stocks
Commissions
Investing and Trading Differences
Stocks vs. ETFs
Stocks vs. Mutual Funds
ETFs vs. Mutual Funds
What Is a Bond?
Bond Yield Definition
Basic Bond Characteristics
How to Buy a Bond
Corporate Bonds
Government Bonds
Municipal Bonds
Options vs. Futures
Essential Options Trading CURRENT ARTICLE
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Stock Fundamentals
Essentials of Analyzing Stocks
Evaluating Company Financials
Technical Analysis

Options are a type of contract that gives the buyer the right to buy or sell a security at a specified price at some point in the future. An option holder is essentially paying a premium for the right to buy or sell the security within a certain timeframe.

If market prices become unfavorable for option holders, they will let the option expire worthless and not exercise this right, ensuring that potential losses are not higher than the premium. If the market moves in a favorable direction, the holder may choose to exercise the contract.

Options are generally divided into "call" and "put" contracts. With a call option , the buyer of the contract purchases the right to buy the underlying asset in the future at a predetermined price, known as the exercise price or strike price . With a put option , the buyer acquires the right to sell the underlying asset in the future at the predetermined price.

Key Takeaways

Options trading may sound risky or complex for beginner investors, and so they often stay away.
Some basic strategies using options, however, can help a novice investor protect their downside and hedge market risk.
Here we look at four such strategies: long calls, long puts, covered calls, protective puts, and straddles.
Options trading can be complex, so be sure to understand the risks and rewards involved before diving in.

xPACIFICA / Getty Images

Embarking on the path to options trading encompasses five pivotal steps. First, you should assess your financial health, tolerance for risk and options knowledge. This is fundamental to align with the volatile nature of options trading. Then you should choose the right broker. This involves evaluating fees, platform capabilities, and support services.

Next, you need to gain approval for options trading, proving your market savvy and financial preparedness to the brokers. Success in options trading hinges on crafting a comprehensive trading plan that includes clear strategies, risk management techniques, and defined objectives. Lastly, you should understand the tax implications of options trading and continue to learn and manage your risks.

Options trading can be more complex and riskier than stock trading. It requires a good grasp of market trends, the ability to read and interpret data and indicators, and an understanding of volatility. You need to be honest about your risk tolerance, investment goals, and the time you can dedicate to this activity.

You should look for a broker that supports options trading and suits your needs in terms of fees, platform usability, customer service, and educational resources. The best options brokers should offer a good balance between costs and features.

Most brokers require you to fill out an options approval form as part of the account setup process. This usually involves disclosing your financial situation, trading experience, and understanding of the risks involved. Brokers offer different levels of options trading approval based on the risk associated with various strategies, from basic covered calls to more advanced strategies like straddles or iron condors .

Define your trading strategy, including the types of options strategies you plan to execute, your entry and exit criteria, and how you will manage risk. Paper trading, or simulated trading, can be a valuable tool for testing your strategies without financial risk.

Options trading has unique tax considerations. The Internal Revenue Services (IRS) treats options transactions differently depending on the strategy and outcome. It is advisable to consult a tax professional to understand the implications for your situation.

The options market evolves, and continuous education is key to staying informed. You need to be always aware of the risks involved in options trading and use risk management techniques to protect your capital.

Potential upside gains

Losses may be limited to premium paid

Leverage can increase rewards

Risk hedging

Difficult to price

Advance investment knowledge

Leverage can multiply potential losses

Potentially unlimited risk when selling options

There are some advantages to trading options for those looking to make a directional bet in the market. If you think the price of an asset will rise, you can buy a call option using less capital than the asset itself. At the same time, if the price falls instead, your losses are limited to the premium paid for the options and no more. This could be a preferred strategy for traders who:

Are "bullish" or confident about a particular stock, exchange-traded fund (ETF), or index and want to limit risk
Want to utilize leverage to take advantage of rising prices.

Options are essentially leveraged instruments in that they allow traders to amplify the potential upside benefit by using smaller amounts than would otherwise be required if trading the underlying asset itself. So, instead of laying out $10,000 to buy 100 shares of a $100 stock, you could hypothetically spend, say, $2,000 on a call contract with a strike price 10% higher than the current market price.

A standard equity option contract on a stock controls 100 shares of the underlying security .

Suppose a trader wants to invest $5,000 in Apple ( AAPL ), trading at around $165 per share. With this amount, they can purchase 30 shares for $4,950. Suppose then that the price of the stock increases by 10% to $181.50 over the next month. Ignoring any brokerage commission or transaction fees, the trader’s portfolio will rise to $5,445, leaving the trader with a net dollar return of $495, or 10% on the capital invested.

Now, let's say a call option on the stock with a strike price of $165 that expires about a month from now costs $5.50 per share or $550 per contract. Given the trader's available investment budget, they can buy nine options for a cost of $4,950. Because the option contract controls 100 shares, the trader is effectively making a deal on 900 shares. If the stock price increases 10% to $181.50 at expiration, the option will expire in the money (ITM) and be worth $16.50 per share (for a $181.50 to $165 strike), or $14,850 on 900 shares. That's a net dollar return of $9,990, or 200% on the capital invested, a much larger return compared to trading the underlying asset directly.

Risk/Reward

The trader's potential loss from a long call is limited to the premium paid. Potential profit is unlimited because the option payoff will increase along with the underlying asset price until expiration, and there is theoretically no limit to how high it can go.

Image by Julie Bang Â© Investopedia 2019

If a call option gives the holder the right to purchase the underlying at a set price before the contract expires, a put option gives the holder the right to sell the underlying at a set price. This is a preferred strategy for traders who:

Are bearish on a particular stock, ETF, or index, but want to take on less risk than with a short-selling strategy
Want to utilize leverage to take advantage of falling prices

A put option works effectively in the exact opposite direction from the way a call option does, with the put option gaining value as the price of the underlying decreases. Though short-selling also allows a trader to profit from falling prices, the risk with a short position is unlimited because there is theoretically no limit to how high a price can rise. With a put option, if the underlying ends up higher than the strike price, the option will simply expire worthless.

Say that you think the price of a stock is likely to decline from $60 to $50 or lower based on corporate earnings, but you don't want to risk selling the stock short in case earnings do not disappoint. Instead, you can buy the $50 put for a premium of $2.00. If the stock does not fall below $50, or if indeed it rises, the most you will lose is the $2.00 premium.

However, if you are right and the stock drops to $45, you would make $3 ($50 minus $45. less the $2 premium).

The potential loss on a long put is limited to the premium paid for the options. The maximum profit from the position is capped because the underlying price cannot drop below zero, but as with a long call option, the put option leverages the trader's return.

Unlike the long call or long put, a covered call is a strategy that is overlaid onto an existing long position in the underlying asset. It is essentially an upside call that is sold in an amount that would cover that existing position size. In this way, the covered call writer collects the option premium as income, but also limits the upside potential of the underlying position. This is a preferred position for traders who:

Expect no change or a slight increase in the underlying's price, collecting the full option premium
Are willing to limit upside potential in exchange for some downside protection

A covered call strategy involves buying 100 shares of the underlying asset and selling a call option against those shares. When the trader sells the call, the option's premium is collected, thus lowering the cost basis on the shares and providing some downside protection. In return, by selling the option, the trader is agreeing to sell shares of the underlying at the option's strike price, thereby capping the trader's upside potential.

Suppose a trader buys 1,000 shares of BP ( BP ) at $44 per share and simultaneously writes 10 call options (one contract for every 100 shares) with a strike price of $46 expiring in one month, at a cost of $0.25 per share, or $25 per contract and $250 total for the 10 contracts. The $0.25 premium reduces the cost basis on the shares to $43.75, so any drop in the underlying down to this point will be offset by the premium received from the option position, thus offering limited downside protection.

If the share price rises above $46 before expiration, the short call option will be exercised (or "called away"), meaning the trader will have to deliver the stock at the option's strike price. In this case, the trader will make a profit of $2.25 per share ($46 strike price - $43.75 cost basis).

However, this example implies the trader does not expect BP to move above $46 or significantly below $44 over the next month. As long as the shares do not rise above $46 and get called away before the options expire, the trader will keep the premium free and clear and can continue selling calls against the shares if desired.

If the share price rises above the strike price before expiration, the short call option can be exercised and the trader will have to deliver shares of the underlying at the option's strike price, even if it is below the market price. In exchange for this risk, a covered call strategy provides limited downside protection in the form of the premium received when selling the call option.

A protective put involves buying a downside put in an amount to cover an existing position in the underlying asset. In effect, this strategy puts a lower floor below which you cannot lose more. Of course, you will have to pay for the option's premium. In this way, it acts as a sort of insurance policy against losses. This is a preferred strategy for traders who own the underlying asset and want downside protection

Thus, a protective put is a long put, like the strategy we discussed above; however, the goal, as the name implies, is downside protection versus attempting to profit from a downside move. If a trader owns shares with a bullish sentiment in the long run but wants to protect against a decline in the short run, they may purchase a protective put.

If the price of the underlying increases and is above the put's strike price at maturity , the option expires worthless and the trader loses the premium but still has the benefit of the increased underlying price. On the other hand, if the underlying price decreases, the trader’s portfolio position loses value, but this loss is largely covered by the gain from the put option position. Hence, the position can effectively be thought of as an insurance strategy.

The trader can set the strike price below the current price to reduce premium payment at the expense of decreasing downside protection. This can be thought of as deductible insurance. Suppose, for example, that an investor buys 1,000 shares of Coca-Cola ( KO ) at a price of $44 and wants to protect the investment from adverse price movements over the next two months. The following put options are available:

Protective Put Examples

$44 put	$1.23
$42 put	$0.47
$40 put	$0.20

The table shows that the cost of protection increases with the level thereof. For example, if the trader wants to protect the investment against any drop in price, they can buy 10 at-the-money (ATM) put options at a strike price of $44 for $1.23 per share, or $123 per contract, for a total cost of $1,230. However, if the trader is willing to tolerate some level of downside risk, choosing a less costly out-of-the-money (OTM) option such as the $40 put could also work. In this case, the cost of the option position will be much lower at only $200.

If the price of the underlying stays the same or rises, the potential loss will be limited to the option premium, which is paid as insurance. If, however, the price of the underlying drops, the loss in capital will be offset by an increase in the option's price and is limited to the difference between the initial stock price and strike price plus the premium paid for the option. In the example above, at the strike price of $40, the loss is limited to $4.20 per share ($44 - $40 + $0.20).

Buying a straddle lets you capitalize on future volatility but without having to take a bet whether the move will be to the upside or downside—either direction will profit.

Here, an investor buys both a call option and a put option at the same strike price and expiration on the same underlying. Because it involves purchasing two at-the-money options, it is more expensive than some other strategies.

Consider someone who expects a particular stock to experience large price fluctuations following an earnings announcement on Jan. 15. Currently, the stock’s price is $100.

The investor creates a straddle by purchasing both a $5 put option and a $5 call option at a $100 strike price which expires on Jan. 30. The net option premium for this straddle is $10. The trader would realize a profit if the price of the underlying security was above $110 (which is the strike price plus the net option premium) or below $90 (which is the strike price minus the net option premium) at the time of expiration.

A long straddle can only lose a maximum of what you paid for it. Since it involves two options, however, it will cost more than either a call or put by itself. The maximum reward is theoretically unlimited to the upside and is bounded to the downside by the strike price (e.g., if you own a $20 straddle and the stock price goes to zero, you would make a max. of $20).

The strategies outlined here are straightforward and can be employed by most novice traders or investors. There are, however, more nuanced strategies than simply buying calls or puts. While we discuss many of these types of strategies elsewhere, here is just a brief list of some other basic options positions that would be suitable for those comfortable with the ones discussed above:

Married put strategy: Similar to a protective put, the married put involves buying an at-the-money (ATM) put option in an amount to cover an existing long position in the stock. In this way, it mimics a call option (sometimes called a synthetic call ).
Protective collar strategy: With a protective collar , an investor who holds a long position in the underlying buys an out-of-the-money (i.e., downside) put option, while at the same time writing an out-of-the-money (upside) call option for the same stock.
Long strangle strategy: Similar to the straddle, the buyer of a strangle goes long on an out-of-the-money call option and a put option at the same time. They will have the same expiration date, but they have different strike prices: The put strike price should be below the call strike price. This involves a lower outlay of premium than a straddle but also requires the stock to move either higher to the upside or lower to the downside in order to be profitable.
Vertical Spreads : A vertical spread involves the simultaneous buying and selling of options of the same type (i.e., either puts or calls) and expiry, but at different strike prices. These can be constructed as either bull or bear spreads, which will profit when the market rises or falls, respectively. Spreads are less costly than a long call or long put since you are also receiving the options premium from the one you sold. However, this also limits your potential upside to the width between the strikes.

The biggest advantage to buying options is that you have great upside potential with losses limited only to the option's premium. However, this can also be a drawback since options will expire worthless if the stock does not move enough to be in-the-money. This means that buying a lot of out-of-the-money options can be costly.

Options can be very useful as a source of leverage and risk hedging. For example, a bullish investor who wishes to invest $1,000 in a company could potentially earn a far greater return by purchasing $1,000 worth of call options on that firm, as compared to buying $1,000 of that company’s shares. In this sense, the call options provide the investor with a way to leverage their position by increasing their buying power. On the other hand, if that same investor already has exposure to that same company and wants to reduce that exposure, they could hedge their risk by selling put options against that company.

The main disadvantage of options contracts is that they are complex and difficult to price. This is why options are often considered a more advanced investment vehicle, suitable only for experienced investors. In recent years, they have become increasingly popular among retail investors. Because of their capacity for outsized returns or losses, investors should make sure they fully understand the potential implications before entering into any options positions. Failing to do so can lead to devastating losses.

There is also a large risk selling options in that you take on theoretically unlimited risk with profits limited to the premium (price) received for the option.

Is Options Trading better than Investing in Stocks?

Determining whether options trading is better than investing in stocks depends on your investment goals, risk tolerance, time horizon, and market knowledge. Both have their advantages and disadvantages, and the best choice varies based on the individual.

It should be known that neither options trading nor stock investing is inherently better. They serve different purposes and suit different profiles. A balanced approach for some traders and investors may involve incorporating both strategies into their portfolio, using stocks for long-term growth and options for leverage, income, or hedging. Consider consulting with a financial advisor to align any investment strategy with your financial goals and risk tolerance.

Is Options Trading Right for Me?

Figuring out whether options trading is right for you involves a self-assessment of several key factors, including your investment goals, risk tolerance, market knowledge, and commitment to ongoing learning. Thus, you should understand your goals, assess your risk tolerance, evaluate your market knowledge and willingness to learn, consider your financial situation, consider your ability to commit time to options trading as well as develop your emotional discipline. It is always advisable to start with education and perhaps paper trading to gain experience and confidence before committing real capital to options trading.

What Are the Levels of Options Trading?

Most brokers assign different levels of options trading approval based on the riskiness involved and complexity involved. The four strategies discussed here would all fall under the most basic levels, level 1 and Level 2. Customers of brokerages will typically have to be approved for options trading up to a certain level and maintain a margin account .

Level 1: covered calls and protective puts, when an investor already owns the underlying asset
Level 2: long calls and puts, which would also include straddles and strangles
Level 3: options spreads , involving buying one or more options and at the same time selling one or more different options of the same underlying
Level 4: selling (writing) naked options , which here means unhedged, posing the possibility for unlimited losses

Where Do Options Trade?

Listed options trade on specialized exchanges such as the Chicago Board Options Exchange (CBOE) , the Boston Options Exchange (BOX) , or the International Securities Exchange (ISE) , among others. These exchanges are largely electronic nowadays, and orders you send through your broker will be routed to one of these exchanges for best execution.

Can You Trade Options for Free?

Though many brokers now offer commission-free trading in stocks and ETFs, options trading still involves fees or commissions. There will typically be a fee-per-trade (e.g., $4.95) plus a commission per contract (e.g., $0.50 per contract). Therefore, if you buy 10 options under this pricing structure, the cost to you would be $4.95 + (10 x $0.50) = $9.95.

Options offer alternative strategies for investors to profit from trading underlying securities. There are advanced strategies like the butterfly and Christmas tree that involve different combinations of options contracts. Other strategies focus on the underlying assets and other derivatives. Basic strategies for beginners include buying calls, buying puts, selling covered calls, and buying protective puts. There are advantages to trading options rather than underlying assets, such as downside protection and leveraged returns, but there are also disadvantages, like the requirement for upfront premium payment. The first step to trading options is to choose a broker.

U.S. Securities and Exchange Commission. " Investor Bulletin: An Introduction to Options ."

cnbc.com, " Want to trade options? Before jumping on the bandwagon, here's what you need to know "

Tradetron, " Paper Trading Options: A Comprehensive Guide to Mastering Virtual Trading "

Fidelity, " What are options, and how do they work? "

Charles Schwab, " How are Options Taxed? "

Fidelity, " Introduction to Options "

Financial Industry Regulatory Authority. " Options: Buying and Selling ."

CME Group Education. " Covered Calls ."

Charles Schwab. " Options Strategy: The Covered Call ."

Fidelity. " Protective Put (Long Stock + Long Put) ."

CME Group Education. " Straddles ."

Fidelity. " Straddling the Market for Opportunities ."

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Trading fees

Feature		Definitions
Minimum Deposit	$0.00
Stock Trades	$0.00
Mutual Fund Trade Fee	$0.00
Options (Base Fee)	$0.00
Options (Per Contract)	$0.65
Futures (Per Contract)	$1.50
Broker Assisted Trade Fee	$25

Account fees

Feature
IRA Annual Fee	$0.00
IRA Closure Fee	$0.00
Account Transfer Out (Partial) info	$0.00
Account Transfer Out (Full) info	$75.00
Options Exercise Fee	$0.00
Options Assignment Fee	$0.00

Margin rates

Feature
Margin Rate Under $25,000	14.2% info
Margin Rate $25,000 to $49,999.99	13.7%
Margin Rate $50,000 to $99,999.99	13.2%
Margin Rate $100,000 to $249,999.99	12.7%
Margin Rate $250,000 to $499,999.99	12.2%
Margin Rate $500,000 to $999,999.99	Varies info
Margin Rate Above $1,000,000	Varies info

Investment options

Feature		Definitions
Stock Trading info	Yes	Offers stock trading.
Margin Trading	Yes
Fractional Shares info	No	Customers can buy and sell less than one whole share of a stock, e.g., half a share of Apple (AAPL).
OTC Stocks info	Yes	Offers OTC stocks trading.
Options Trading info	Yes	Offers options trading.
Complex Options Max Legs info	4	The max number of individual legs supported when trading options (0 - 4). For example, Iron Condor has four total legs.
Futures Trading info	Yes	Offers futures trading.
Forex Trading info	No	Offers forex trading.
Crypto Trading info	No	Offers cryptocurrency trading.
Crypto Trading - Total Coins info	0	Total number of individual coins offered, e.g., Bitcoin.
Mutual Funds (No Load) info	6486	Total number of No Load mutual funds offered.
Mutual Funds (Total) info	7242	Total number of mutual funds offered.
Bonds (US Treasury) info	Yes	Offers US treasury bonds trading via the website, mobile app, or trading platform. Phone orders do not count.
Bonds (Corporate) info	Yes	Offers corporate bonds trading via the website, mobile app, or trading platform. Phone orders do not count.
Bonds (Municipal) info	Yes	Offers municipal bonds trading via the website, mobile app, or trading platform. Phone orders do not count.
Advisor Services info	Yes	Offers formal investment advisory services.
International Countries (Stocks) info	0	Total countries, outside of the United States, that clients have access to for trading EQUITIES over the web. ADRs and phone trades do not count. For example, if customers can purchase shares of companies listed on the TSX, then Canada would be one country.

Order types

Feature		Definitions
Order Type - Market info	Yes	Offers order type: market.
Order Type - Limit info	Yes	Offers order type: limit.
Order Type - After Hours info	Yes	Trading during pre and post market hours using limit orders.
Order Type - Stop info	Yes	Offers order type: stop.
Order Type - Trailing Stop info	Yes	Offers order type: trailing stop.
Order Type - OCO info	Yes	Offers order type: one cancels other (OCO).
Order Type - OTO info	Yes	Offers order type: one triggers other (OTO).
Order Type - Broker Assisted info	Yes	A broker-assisted trade over the phone.

Feature		Definitions
Education (Stocks) info	Yes	Provides a minimum of 10 educational pieces (articles, videos, archived webinars, or similar) with the primary subject being stocks. All content must be easily found within the website's Learning Center. Platform tutorials, FAQs, etc do NOT count.
Education (ETFs) info	Yes	Provides a minimum of 10 educational pieces (articles, videos, archived webinars, or similar) with the primary subject being ETFs. All content must be easily found within the website's Learning Center. Platform tutorials, FAQs, etc do NOT count.
Education (Options) info	Yes	Provides a minimum of 10 educational pieces (articles, videos, archived webinars, or similar) with the primary subject being options. All content must be easily found within the website's Learning Center. Platform tutorials, FAQs, etc do NOT count.
Education (Mutual Funds) info	Yes	Provides a minimum of 10 educational pieces (articles, videos, archived webinars, or similar) with the primary subject being mutual funds. All content must be easily found within the website's Learning Center. Platform tutorials, FAQs, etc do NOT count.
Education (Bonds) info	Yes	Provides a minimum of 10 educational pieces (articles, videos, archived webinars, or similar) with the primary subject being bonds (fixed income). All content must be easily found within the website's Learning Center. Platform tutorials, FAQs, etc do NOT count.
Education (Retirement) info	Yes	Provides a minimum of 10 educational pieces (articles, videos, archived webinars, or similar) with the primary subject being retirement. Platform tutorials, FAQs, etc do NOT count.
Retirement Calculator info	Yes	Offers a retirement calculator.
Investor Dictionary info	Yes	An online dictionary of at least 50 investing terms.
Paper Trading info	Yes	Offers the ability to use a paper (practice) portfolio to place trades.
Videos info	Yes	Provides at least 10 educational videos. A video is a short clip, typically several minutes in duration, that explains a trading concept, term, or strategy. Archived webinars and platform demos do NOT count.
Webinars info	Yes	Provides educational client webinars through the web, at least one per month.
Webinars (Archived) info	Yes	Provides an archived area to search and watch previously recorded client webinars.
Progress Tracking info	No	Clients can track their progress and see which articles and/or videos they've completed to date.
Interactive Learning - Quizzes info	No	Quizzes offered within the education center. Must include multiple questions and score results. Example service provider - Morningstar, InvestingTeacher.com

Stock trading apps

Feature		Definitions
iPhone App info	Yes	Offers a downloadable iPhone app through the iOS app store.
Android App info	Yes	An Android smartphone app available in the Google Play store.
Apple Watch App info	Yes	Offers a downloadable Apple Watch app through the iOS app store.
Trading - Stocks info	Yes	Stocks trades supported in the mobile app.
Trading - After-Hours info	Yes	After-hours trading supported in the mobile app.
Trading - Simple Options info	Yes	Single-leg option trades supported in the mobile app.
Trading - Complex Options info	Yes	Multi-legged option trades supported in the mobile app.
Order Ticket RT Quotes info	Yes	Mobile app order ticket displays real-time quote.
Order Ticket SRT Quotes info	Yes	Mobile app order ticket displays streaming real-time quote.

Stock app features

Feature		Definitions
Market Movers (Top Gainers) info	Yes	Stocks top gainers list viewable in the mobile app.
Stream Live TV info	Yes	Stream live TV in the mobile app. Examples - CNBC, Bloomberg.
Videos on Demand info	No	View archived stock news from the web. Example service providers: Bloomberg, CNBC.
Stock Alerts info	Yes	Can set basic stocks alerts for individual stocks. For example, send a price alerts when stock XYZ hits price $x.
Option Chains Viewable info	Yes	View an option chain in the mobile app.
Watch List (Real-time) info	Yes	Watch list in mobile app uses real-time quotes.
Watch List (Streaming) info	Yes	Watch list in mobile app uses streaming real-time quotes. More specifically, the watch-list must auto-refresh at least once every three seconds.
Watch Lists - Create & Manage info	Yes	Can create and manage (delete, rename) watch lists in the mobile app.
Watch Lists - Column Customization info	Yes	Can customize data fields displayed in the mobile app watch list tool.
Watch Lists - Total Fields info	43	Total available fields when viewing a watch list. Examples: price, symbol, bid, ask, volume.

Stock app charting

Feature		Definitions
Charting - After-Hours info	Yes	Stock charts in mobile app display after-hours trade activity.
Charting - Can Turn Horizontally info	Yes	Ability to rotate the smartphone while viewing a stock chart to see it in horizontal mode or vertical mode.
Charting - Multiple Time Frames info	Yes	Adjust the time frame while viewing a stock chart in the mobile app. Examples: 1m, 5m, 1hr, daily, weekly, monthly.
Charting - Technical Studies info	107	How many technical studies / indicators are available to add to a stock chart in the mobile app.
Charting - Study Customizations info	Yes	Customize technical indicators / studies within the mobile app. Examples: range, color, type.
Charting - Stock Comparisons info	Yes	Display multiple stock charts at once for performance comparison in the mobile app.

Trading platforms overview

Feature		Definitions
Active Trading Platform info	Power E*TRADE	The flagship trading platform.
Desktop Trading Platform info	No	A downloadable Windows- or Mac-based desktop trading platform.
Desktop Platform (Mac) info	No	Offers an OSX compatible downloadable trading platform (not browser-based or through a windows emulator, e.g., Parallels).
Web Trading Platform info	Yes	Offers a web (browser) based trading platform.
Paper Trading info	Yes	Offers the ability to use a paper (practice) portfolio to place trades.
Trade Journal info	No	Provides a trade journal for writing notes. All entries are dated, titled, and may be tagged with a specific stock ticker. Adding text notes to individual stock charts does NOT count.
Watch Lists - Total Fields info	43	Total available fields when viewing a watch list. Examples: price, symbol, bid, ask, volume.

Trading platform stock chart features

Feature		Definitions
Charting - Adjust Trades on Chart info	Yes	The ability to see an open order - limit, stop, or similar - on a stock chart then click and drag to adjust its execution price.
Charting - Indicators / Studies info	121	The total number of indicators / studies available to be included on a stock chart. Examples: SMA, MACD, RSI.
Charting - Drawing Tools info	37	The number of drawing tools available for analyzing a stock chart. Examples include: pointer, trendline, arrow, note.
Charting - Notes info	Yes	Add notes to any stock chart.
Charting - Index Overlays info	Yes	Adding an index (S&P 500 or similar) overlay to a stock chart.
Charting - Historical Trades info	Yes	The ability to see past buy and sells, typically marked with a buy or sell symbol, on the stock chart.
Charting - Corporate Events info	Yes	Can show or hide multiple corporate events on a stock chart. Examples: dividends, earnings, splits, news.
Charting - Custom Date Range info	Yes	The ability to select a user-defined start and end date for individual stock charts, e.g. 06/05/17 - 07/19/17
Charting - Custom Time Bars info	No	Ability to set a custom time interval for each bar. For example, instead of using traditional 5m bars, have 3m bars, 2m bars, or 17m bars. Instead of a daily chart, set a 6 day bar, 2d bar, or similar.
Charting - Automated Analysis info	Yes	Can show or hide automated technical analysis (patterns) on a chart. Service provider example: Trading Central (Recognia).
Charting - Save Profiles info	Yes	Ability to modify a stock chart then save the marked up chart as a custom profile. For example, a two-year daily chart with a 50 SMA, MACD, and average daily volume bars below.
Trade Ideas - Technical Analysis info	Yes	A tool that generates stock trade ideas based off of technical analysis. Service provider example: Trading Central (Recognia).
Charting - Study Customizations info	8	The number of customizations possible for the SMA indicator / study. Examples: length, color, style.
Charting - Custom Studies info	No	The ability to create a custom indicator / study from scratch using code and have it display on a chart. Editing a default indicator / study does not count.

Day trading features

Feature		Definitions
Streaming Time & Sales info	Yes	Streaming time & sales for any equity viewable.
Streaming TV info	Yes	Offers live TV. Examples - CNBC, Bloomberg.
Direct Market Routing - Stocks info	Yes	Ability to route stock orders directly to a specific exchange designated by the client.
Ladder Trading info	No	A ladder tool provides active trading clients the ability to one click buy and sell equities off a real-time streaming window of fanned bids and asks.
Trade Hot Keys info	Yes	Ability to designate keyboard hotkeys for on the fly trading.
Level 2 Quotes - Stocks info	Yes info	Level II stock quotes available.
Trade Ideas - Backtesting info	No	A tool that backtests different investment strategies, typically focused on technical events, and displays the results. Example service providers: Trade-Ideas, Trading Central (Recognia).
Trade Ideas - Backtesting Adv info	No	A fully customizable, advanced backtesting tool provided by the broker directly. Third-party providers do not count.
Short Locator info	No	Tool that allows customers to view the current real-time availability of shares available to short by security.
Order Liquidity Rebates info	No	Offers an optional commissions structure for professionals which grants the trader full control of the order routing to market centers, thus enabling maker/taker liquidity rebates.

Investment research overview

Feature		Definitions
Research - Stocks info	Yes	Offers stock research. Can view quote results for 4 of the 5 following tickers: Facebook, Apple, Amazon, Netflix, Google.
Research - ETFs info	Yes	Offers ETFs research. Can view quote results for 4 of the 5 following tickers: SPY, GLD, OIH, QID, FAZ.
Research - Mutual Funds info	Yes	Offers mutual funds research. Can view quote results for all three of the following tickers: VTSAX, FXAIX, SWPPX.
Research - Pink Sheets / OTCBB info	Yes	Offers pink sheet / OTCBB research. Can view quote results for 2 of the 3 following tickers: FNMA, IMBBY, TCEHY.
Research - Bonds info	Yes	Offers bonds (fixed income) research. Can view quote results for fixed income securities such as individual US Treasuries.
Screener - Stocks info	Yes	Offers an equities screener.
Screener - ETFs info	Yes	Offers an ETF screener.
Screener - Mutual Funds info	Yes	Offers a mutual fund screener.
Screener - Bonds info	Yes	Offers a bond screener. **Note - ETF bond screeners do NOT count.
Misc - Portfolio Allocation info	Yes	Displays a pie graph or bullet list breakdown of the customer's current portfolio including % allocations. Examples: domestic equities, foreign equities, bonds, cash, fixed income.

Stock research features

Feature		Definitions
Stock Research - PDF Reports info	8	Total number of downloadable PDF research report providers available for equities research (using symbol AAPL). Examples: S&P Capital IQ, Thomson Reuters, Ned Davis Research.
Stock Research - Earnings info	Yes	View analysis of past earnings. At least one chart / graph required. Examples: Consensus vs actual data, EPS growth, sales growth.
Stock Research - Insiders info	Yes	View a list of recent insider transactions.
Stock Research - Social info	Yes	View social sentiment analysis, eg twitter analysis (NOT just a stream of recent tweets), for individual equities.
Stock Research - News info	Yes	View a stream of recent news.
Stock Research - ESG info	No	Provides Environmental, Social, Governance (ESG) criteria scores.
Stock Research - SEC Filings info	Yes	View a list of recent SEC filings.

ETF research features

Feature		Definitions
ETFs - Strategy Overview info	Yes	A written description of the fund's objective.
ETF Fund Facts - Inception Date info	Yes	ETF inception date listed.
ETF Fund Facts - Expense Ratio info	Yes	ETF expense ratio listed.
ETF Fund Facts - Net Assets info	Yes	ETF net assets listed.
ETF Fund Facts - Total Holdings info	Yes	ETF total holdings listed.
ETFs - Top 10 Holdings info	Yes	A list of the ETF's top 10 holdings.
ETFs - Sector Exposure info	Yes	A pie chart or bullet list breakdown of the ETF's sector exposure / weightings.
ETFs - Risk Analysis info	Yes	The ability to view risk metrics. This is most commonly provided as a rating and/or volatility metric.
ETFs - Ratings info	Yes	Are third party ratings available for the ETF SPY? Examples: Morningstar, Lippers.
ETFs - Morningstar StyleMap info	Yes	The infamous Morningstar Equity StyleMap (or equiv provider) which visually marks the ETF's investment strategy in one of nine boxes.
ETFs - PDF Reports info	Yes	Are downloadable research reports available for the ETF SPY? Examples: Morningstar, S&P Capital IQ.

Mutual fund research features

Feature		Definitions
Mutual Funds - Strategy Overview info	Yes	A written description of the fund's objective.
Mutual Funds - Performance Chart info	No	Is a stock chart available of the fund VTSMX?
Mutual Funds - Performance Analysis info	Yes	The ability to view multi-year historical performance.
Mutual Funds - Prospectus info	Yes	Access to the fund's prospectus in PDF format.
Mutual Funds - 3rd Party Ratings info	Yes	Are 3rd party ratings available for the fund VTSMX? Examples: Morningstar, Lippers.
Mutual Funds - Fees Breakdown info	Yes	A clear breakdown of the fund's fees beyond just the expense ratio. 12b-1, minimum investment, total fees estimate, all examples of a detailed breakdown.
Mutual Funds - Top 10 Holdings info	Yes	A list of the fund's top 10 holdings.
Mutual Funds - Asset Allocation info	Yes	A pie chart or bullet list breakdown of the fund's asset allocation.
Mutual Funds - Sector Allocation info	Yes	A pie chart or bullet list breakdown of the fund's sector allocation.
Mutual Funds - Country Allocation info	Yes	A pie chart or bullet list breakdown of the fund's country allocation. Continent allocation also acceptable.
Mutual Funds - StyleMap info	Yes	The infamous Morningstar StyleMap (or equiv provider) which visually marks the fund's investment strategy in one of nine boxes.

Options trading overview

Feature		Definitions
Option Chains - Basic View info	Yes	A basic option chain displaying calls and puts.
Option Chains - Strategy View info	Yes	A basic option chain filtered by option strategy. Examples: calls, puts, butterfly, calendar.
Option Chains - Streaming info	Yes	Option chains with streaming real-time data.
Option Chains - Total Columns info	32	Option chains total available columns for display. Duplicates do not count.
Option Chains - Greeks info	5	When viewing an option chain, the total number of greeks that are available to be viewed as optional columns. Greeks = delta, gamma, theta, vega, rho.
Option Chains - Quick Analysis info	Yes	The ability to jump straight from the option chain to a P&L chart or probability chart for deeper analysis. Viewing a summary P&L within the chain itself also qualifies.
Option Analysis - P&L Charts info	Yes	When analyzing a theoretical option trade, a P&L chart is available.
Option Probability Analysis info	Yes	A basic probability calculator.
Option Probability Analysis Adv info	Yes	A tool to analyze a hypothetical option position. Displays a probability histogram / chart with optional customizations.
Option Positions - Greeks info	Yes	View at least two different greeks for a currently open option position.
Option Positions - Greeks Streaming info	Yes	View at least two different greeks for a currently open option position and have their values stream with real-time data.
Option Positions - Adv Analysis info	Yes	Ability to analyze an active option position and change at least two of the three following conditions - date, stock price, volatility - and assess what happens to the value of the position.
Option Positions - Rolling info	Yes	Ability to pre-populate a trade ticket and seamlessly roll an option position to the next relative expiration.
Option Positions - Grouping info	Yes	Ability to group current option positions by the underlying strategy: covered call, vertical, etc. Can be done manually by user or automatically by the platform.

Banking features

Feature		Definitions
Bank (Member FDIC) info	Yes	Operates a regulated bank as a registered member of the FDIC (Federal Deposit Insurance Corporation) - fdic.gov.
Checking Accounts info	Yes	Offers formal checking accounts and checking services. To qualify, checking services must be marketed on the website as a client service. Basic checking through the clearing firm does not count.
Savings Accounts info	Yes	Offers savings accounts.
Credit Cards info	Yes	Offers credit cards.
Debit Cards info	Yes	Offers debit cards as part of a formal banking service.
Mortgage Loans info	Yes	Offers mortgage loans.

Customer service options

Feature		Definitions
Phone Support (Prospect Customers) info	Yes	Offers phone support for prospective customers.
Phone Support (Current Customers) info	Yes	Offers phone support for current customers (includes click to call back).
Email Support info	Yes	Email support for clients.
Live Chat (Prospect Customers) info	No	Live chat support for prospective customers.
Live Chat (Current Customers) info	Yes	Live chat support for current customers.
24/7 Support info	Yes	Is customer service offered 24 hours, 7 days a week?

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Pricing and Rates

We don’t believe in holding back on information. especially on pricing. get the answers you’re looking for., stocks, options, mutual funds, and etfs, options contracts.

50¢ with 30+ trades per quarter 1

Futures contracts

(online secondary trades)

(minimum $10, maximum $250)

Detailed pricing

 stock and options trades.

Pricing	0 29 Trades/QTR	30+ Trades/QTR
(US Exchange-listed stocks)


Close short options priced at 10¢ or less, no contract fee

For options orders, an options regulatory fee will apply. Additional regulatory and exchange fees may apply. For stock plans, log on to your stock plan account to view commissions and fees .

Broker assisted trades

Customers will be charged an additional $25 for broker-assisted trades, (excluding Extended Hours overnight session trades placed via broker between 4 a.m. and 7 a.m. ET), plus applicable commission and fees. Directed trades executed through E*TRADE Pro to an ECN during regular market hours and Extended Hours sessions are subject to directed order fee of $0.005 per share. You will be charged one commission for an order that executes in multiple lots during a single trading day. Orders that execute over more than one trading day, or orders that are changed, may be subject to an additional commission. Standard commissions for stock and options trades are $0 (plus an additional $0.65 per options contract). For options orders, an options regulatory fee will apply.

Over-the-counter stock trades

A $6.95 commission (or a $4.95 commission for customers who execute at least 30 stock, ETF, and options trades per quarter) applies to online trades of OTC stocks , including OTC, OTCBB, grey market, and OTC-traded foreign securities.

 Exchange-traded funds (ETFs)

Pricing	0 29 Trades/QTR	30+ Trades/QTR

The fund's prospectus contains its investment objectives, risks, charges, expenses, and other important information and should be read and considered carefully before investing. For a current prospectus, visit www.etrade.com/mutualfunds or visit the Exchange-Traded Funds Center at www.etrade.com/etf .

 Bonds

U.S. Treasury auction	$0
U.S. Treasury secondary trades online	$0
Online secondary trades	$1 per bond (minimum $10, maximum $250)
Broker-assisted trades	Online secondary pricing plus $20 commission
New issues (except Treasury auction)	Offering price includes a selling concession

E*TRADE from Morgan Stanley may act as principal or agent on any bond transaction. When acting as principal, we will add a markup to any purchase, and subtract a markdown from every sale. The markup or markdown will be included in the price quoted to you and you will not be charged any commission or transaction fee for a principal trade. Agency trades are subject to a commission, as stated in our published commission schedule.

Includes agency bonds, corporate bonds, municipal bonds, brokered CDs, pass-throughs, CMOs, asset-backed securities.

Secondary market trades executed through a Fixed Income Specialist may be subject to a commission.

 Futures

per contract, per side + fees (excluding cryptocurrency futures)*

* Commissions for cryptocurrency futures products are $2.50 per contract, per side + fees.

In addition to the $1.50 per contract per side commission, futures customers will be assessed certain fees including applicable futures exchange and National Futures Association (NFA) fees, as well as floor brokerage charges for execution of non-electronically traded futures and futures options contracts. These fees are not established by E*TRADE Futures LLC, and will vary by exchange.

 Mutual funds

No-load, no-transaction-fee funds	$0
Load funds	See prospectus for amount of load

The fund’s prospectus contains its investment objectives, risks, charges, expenses and other important information and should be read and considered carefully before investing. For a current prospectus, visit www.etrade.com/mutualfunds .

 Margin rates

Base rate effective as of 07/27/2023 – 11.70%

Stocks, options, and ETFs

Debit Balance	Margin Rate
Less than $10,000	(2.50% above base rate)
$10,000 to $24,999.99	(2.25% above base rate)
$25,000 to $49,999.99	(2.00% above base rate)
$50,000 to $99,999.99	(1.50% above base rate)
$100,000 to $249,999.99	(1.00% above base rate)
$250,000 to $499,999.99*	(0.50% above base rate)

*For balance tiers $500K and above, please call 800-998-8079 to learn about our latest rate offers.

Margin trading involves risks and is not appropriate for all investors. Rates are subject to change without notice. Rates are set at the discretion of Morgan Stanley Smith Barney LLC ("Morgan Stanley") with reference to commercially recognized interest rates, such as the broker call loan rate.

Trading on margin involves risk, including the possible loss of more money than you have deposited. In addition, Morgan Stanley can force the sale of any securities in your account without contacting you if your equity falls below required levels, and you are not entitled to an extension of time in the event of a margin call. For more information, please read the risks of trading on margin at www.etrade.com/margin .

The base rate is set at Morgan Stanley's discretion with reference to commercially recognized interest rates, such as the broker call loan rate. Base rates are subject to change without prior notice, including without limitation on an intraday basis.

Transactions in futures carry a high degree of risk. The amount of initial margin is small relative to the value of the futures contract. A relatively small market movement will have a proportionately larger impact on the funds you have deposited or will have to deposit: this may work against you as well as for you. You may sustain a total loss of initial margin funds and any additional funds deposited with the Firm to maintain your position. If the market moves against your positions or margin levels are increased, you may be called upon by the Firm to pay substantial additional funds on short notice to maintain your position. If you fail to comply with a request for additional funds immediately, regardless of the requested due date, your position may be liquidated at a loss by the Firm and you will be liable for any resulting deficit.

 Managed Portfolios

Core portfolios.

Professionally managed advisory solution that builds, monitors, and manages a customized portfolio to help reach your financial goals. Learn more

Account market value	Flat annual advisory fee
$500+	0.30%

The advisory fee is paid monthly in advance based on the managed portfolio’s market value on the last business day of the previous billing month. No further action is required on your part.

As the market value of the managed portfolio reaches a higher breakpoint, as shown in the tables above, the assets within the breakpoint category are charged a lower fee (a blend of the different tiered fee rates listed).

 Other fees

Index option fee (iof).

Underlying Symbol	Description	Fee Per Contract
SPX	S&P 500 Index	$0.55
RUT	Russell 2000 Index	$0.07
VIX	CBOE Market Volatility Index	$0.29
OEX	S&P 100 Index (American-style exercise)	$0.35
XEO	S&P 100 Index (European-style exercise)	$0.40
DJX	Dow Jones Industrial Average Index 1/100	$0.06

Please note IOF fees are subject to change.

The fees charged by E*TRADE related to a transaction for the account of Customer are designed to offset third-party fees generally charged to E*TRADE in respect of such transactions, including without limitation any regulatory or transaction fee or tax, market center fee, clearing house fee or depository fee, assessed by any regulatory authority, self-regulatory organization, market center, clearing house, clearing agency or depository, including without limitation the SEC, FINRA, any national securities exchange or other market center, DTC and NSCC. E*TRADE shall have the right to determine such fees in its reasonable discretion, and such fees may differ from or exceed the actual third-party fees properly paid by E*TRADE in connection with any transaction. These differences may be caused by various factors, including, among other things, the rounding methodology used by E*TRADE, the use of allocation accounts and transactions or settlement movements for which a fee may not be assessed, timing differences in changes, third-party rate caps and floors, calculation errors and various other anomalous reasons.

	$0.000166*
	$0.0000278**

* FINRA levies a Trading Activity Fee (TAF) for sales of covered securities that we pass through to you. The FINRA TAF for sales of equity securities is currently $0.000166 per share with a per-transaction cap of $8.30. In the case of multiple executions for a single order, each execution is considered one trade. For example, if you sell 1,000 equity securities the fee would be the number of shares 1,000 multiplied by $0.000166 which equals $0.166. The FINRA TAF for option sales is currently $0.00279 per contract. For example, if you sell 100 options contracts, the fee would be the number of contracts 100 multiplied by $ 0.00279, which equals $0.279. The FINRA TAF for the sale of a covered TRACE-eligible security (other than an asset-backed security) and/or municipal security is $0.00105 multiplied by the number of bonds, with a maximum charge of $1.05 per trade. For example, if you sell 100 bonds, then the fee would be $0.105. Please note FINRA TAF Fees are subject to change.

** In addition to your regular commission, a separate transaction fee (equal to the principal amount x $0.0000278) will apply to the sale of all equities, options, and exchange-traded fund (ETF) securities. The fee, calculated as stated above, only applies to the sale of equities, options, and ETF securities and will be displayed on your trade confirmation. The transaction fee is a fee collected by the United States Securities and Exchange Commission to recover the costs to the Government for the supervision and regulation of the securities markets and securities professionals. All fees will be rounded to the next penny.

Account activity fees

Check returned for insufficient funds
Electronic transfer returned for insufficient funds
Reg T Call Extension
Reorganizations	for mandatory actions (e.g., mergers, reverse stock splits) for voluntary actions (e.g., tender offers) for actions reflected on physical certificates
Restricted securities custody
Worthless securities processing
American Depositary Receipts (ADRs) custody fee
Financial transaction tax (FTT) Ordinary and ADR	all opening transactions in designated will be subject to the French FTT at a rate of of the total transaction cost all opening transactions in designated Italian companies with a market capitalization greater than 500 million Euros will be subject to the Italian FTT at a rate of of the total transaction cost. all Buy side trades in designated with a market capitalization greater than 1 Billion Euros will be subject to the Spanish FTT at a rate of of the total Buy side cost.
Forced margin liquidation
Foreign transactions	Morgan Stanley Private Bank imposes a charge equal to 1% of the transaction amount (including credits and reversals) for non-U. S. currency and foreign transactions.

A one-time fee applied when the custodian of a limited partnership is changed from another brokerage firm to E*TRADE.

Transfer agents and banks that sponsor ADRs are permitted to charge ADR holders an annual custody fee. The fee is administered through the Depository Trust Company (DTC) which typically will be subtracted from the gross dividend amount payable and / or collected from E*TRADE by the DTC and deducted from your account if the ADR does not pay a dividend. The fee will be posted to your monthly account statement and transaction history pages as "ADR Custody Fee."

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Let's Talk About: Exchange Traded Financial Options -- Options Fundamentals -- The Greeks -- Strategies -- Current Plays and Ideas -- Q&A -- **New Traders**: See the Options Questions Safe Haven weekly thread

Etrade cancelled my live order and sold my options for a loss

On 12/30/22 I placed a sell order for 10 CHPT 12/30 $9.50 calls to be sold @ $0.06. Late in the day at 3:36PM the sell ordered was cancelled but not by me and then sold for $0.02 without any consultation with me. At 3:51pm the same call options sold for $0.11 so my order would likely have filled. I called on Sat 12/31 and asked what had happened and was told by Etrade that the options team decided that my order would not fill and therefore cancelled it once it went in the money and then sold it. I asked for this to be corrected and for discretionary trades to be prohibited in my account. As of now I have not seen any action or received any feedback from Etrade.

Has anyone had this happen?

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IMAGES

How to trade options
Does etrade allow me to pick specific lots for option assignment? : r
Etrade options level 2 requirements and with it forex forex forex forex
Etrade Options Trading Tutorial Pt 2 Image 7
Etrade Options Trading Tutorial Pt 2 Image 1
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COMMENTS

Understanding options assignment risk
Understanding assignment risk in Level 3 and 4 options strategies. E*TRADE from Morgan Stanley. 10/20/20. With all options strategies that contain a short option position, an investor or trader needs to keep in mind the consequences of having that option assigned, either at expiration or early (i.e., prior to expiration).
Expiration Process and Risk
E*TRADE reserves the right to liquidate or cover expiring option positions which would result in undue risk and/or margin deficit related to exercise or assignment. Accounts with insufficient equity on hand prior to exercise or assignment are subject to unwarranted risk of adverse price change in the underlying security upon delivery.
Buy Options
Intuitive tools with great service and value. Among the lowest options contract fees in the market. Easy-to-use platform and app for trading options on stocks, indexes, and futures. Support from knowledgeable Options Specialists. Close short options positions priced at 10¢ or less with no contract fee. Open an account.
r/options on Reddit: This is what an E*Trade assignment notification
This is what an E*Trade assignment notification looks like and when received. There have been a lot of questions recently about assignments on expiration, so I figured I'd put out this informational post about what it looks like, to demystify. I had -1 XLE $41 7/17 put (CSP, a Wheel) expire ITM ($36.69) on Friday.
If my put option reaches expiration on etrade and I don't log in to the
If the closing price is below $25.01, you would need to call an E*TRADE Securities broker at 1-800-ETRADE-1 with specific instructions for exercising the option. You would also need to call an E*TRADE Securities broker if the closing price is higher than $25.01 at expiration and you do not wish to exercise the call option.
How Option Assignment Works: Understanding Options Assignment
Written by [email protected] for Schaeffer ->. Options assignment is a process in options trading that involves fulfilling the obligations of an options contract. It occurs when the buyer of ...
Ready for Options Trading? Make Sure You Understand Assignment First
An option assignment represents the seller's obligation to fulfill the terms of the contract by either selling or buying the underlying security at the exercise price. This obligation is triggered ...
The Mechanics of Option Trading, Exercise, and Assignment
A possible assignment can be anticipated if the option is in the money at expiration, the option is trading at a discount, or the underlying stock is about to pay a large dividend. The OCC automatically exercises any option that is in the money by at least $0.01 ( automatic exercise , Exercise-by-Exception , Ex-by-Ex ), unless notified by the ...
Options Exercise, Assignment & Expiration
March 15, 2023 Beginner. Learn about options exercise and options assignment before taking a position, not afterward. This guide can help you navigate the dynamics of options expiration. So your trading account has gotten options approval, and you recently made that first trade—say, a long call in XYZ with a strike price of $105.
Options Trading Tools and Tips on etrade.com
Option traders can access a wealth of tools and information on etrade.com. See how to use option chains, enter and manage options orders, and analyze trades,...
Trading Options: Understanding Assignment
An option assignment represents the seller's obligation to fulfill the terms of the contract by either selling or buying the underlying security at the exercise price. This obligation is triggered when the buyer of an option contract exercises their right to buy or sell the underlying security. To ensure fairness in the distribution of American ...
How to trade options
Step 5 - Create an exit plan. Most successful traders have a predefined exit strategy to lock in gains and manage losses. This is an essential step in every options trading plan. Weigh your market outlook and time horizon for how long you want to hold the position, determine your profit target and maximum acceptable loss, and help manage risk ...
When Is Notification of Options Assignment? : r/etrade
It is possible to not get assigned even though it's ITM. Depending on the situation and timing, the buyer (or the buyers firms risk department) could enter a Do Not Exercise, which would prevent the contracts from exercising. This is assuming you had a single buyer for your contracts. 1.
End time of trading options on expiration day? : r/etrade
Exercise and assignment are different but related things even though they are mentioned in the same breadth in E*Trade's language above. Assignment is what could happen early and since you sold an option, you gave the right to the other person holding that contract to excercie their option at anytime ( if they exercise, you get assigned).
How to Trade Options
E*TRADE: Best Broker for Beginning Options Traders: $0: $0 for stock/ETF trades. Options are $0.50-$0.65 per contract, depending on trading volume: ... assignment, and closing out spread trades.
Options on Expiration Day
E*TRADE from Morgan Stanley. 08/14/23. All options have an expiration date. It is part of the creation and listing of all new series of calls and puts on the various underlying stocks, ETFs, indexes and futures on which options are made available to buy and sell. The expiration date is the end of the contract - the last day the owner of the ...
Options Trading: How to Trade Stock Options in 5 Steps
How to Trade Options in 5 Steps. Embarking on the path to options trading encompasses five pivotal steps. First, you should assess your financial health, tolerance for risk and options knowledge ...
E*Trade charges 900% "hard-to-borrow rate" (HTB) on a short ...
Today I got a notice of assignment. I trade thousands of options annually, I'm not new to being assigned. However, this notice shocked me and I wanted to share it with the community. To confirm, I called the E*Trade Customer Service so it's not a typo. The first rep I got seemed genuinely surprised as well but was unable to assist. He passed me ...
E*TRADE Account Fees and Features List
Options Assignment Fee $0.00 Margin rates. Feature E*TRADE: Margin Rate Under $25,000 14.2% info: Margin Rate $25,000 to $49,999.99 ... E*TRADE: Definitions: Option Chains - Basic View info: Yes A basic option chain displaying calls and puts. Option Chains - Strategy ...
Options trading for beginners
There are two broad categories of options: "call options" and "put options". A call option gives the owner the right to buy a stock at a specific price. But the owner of the call is not obligated to buy the stock. That's an important point to remember. A put option gives the owner the right—but, again, not the obligation—to sell a stock ...
Does etrade allow me to pick specific lots for option assignment?
Reply. Share. 5280Fit. • 3 yr. ago. I have lot selection selected and when I sell a CC it does not allow me to choose the stocks. Only when I straight up sell stocks does it let me select specific stocks to sell. I've also tried selecting LIFO, sold an option, bought to close it and then looked in the Gains and Losses tab on the Portfolios ...
E*TRADE Fees and Rates
Exclusions may apply and E*TRADE from Morgan Stanley reserves the right to charge variable commission rates. The standard options contract fee is $0.65 per contract (or $0.50 per contract for clients who execute at least 30 stock, ETF, and options trades per quarter). The retail online $0 commission does not apply to Over-the-Counter (OTC ...
Etrade cancelled my live order and sold my options for a loss
Assignment of short options is an obligation on the seller if the options go ITM and are assigned. ... Quote from the Etrade options help library"There are two broad categories of options: "call options" and "put options". A call option gives the owner the right to buy a stock at a specific price. But the owner of the call is not obligated to ...

Stack Exchange Network

If my put option reaches expiration on etrade and I don't log in to the site will it automatically exercise if it's in the money or be a total loss?

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Hot Network Questions

Ready for Options Trading? Make Sure You Understand Assignment First

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