What happens when a put option gets exercised?

A put option is a contract that gives its holder the right to sell a set number of equity shares at a set price, called the strike price, before a certain expiration date. If the option is exercised, the writer of the option contract is obligated to purchase the shares from the option holder.

What happens if I exercise a put option without owning stock?

No you don’t need to own the stock to buy a put, but you will need to pay the premium paid for the put on settlement date T+1. If you do not hold the stock however, you will need to sell the put prior to expiration. If the stock is below the strike price you will receive something for your option (intrinsic value).

Who is the seller of a put option?

“Put to seller” describes the process of a put option being exercised. The put writer becomes responsible for receiving the underlying shares from the put buyer at the strike price, since being long puts gives the holder the right to sell the underlying asset.

Is a put option automatically exercised?

Stock options that are in-the-money at the time of expiration will be automatically exercised. For puts, your options are considered in-the-money if the stock price is trading below the strike price. To prevent automatic exercises, please call us prior to 4:15 p.m. ET, on the last trading day of your options contract.

How is a call option exercised?

The order to exercise your options depends on the position you have. For example, if you bought to open call options, you would exercise the same call options by contacting your brokerage company and giving your instructions to exercise the call options (to buy the underlying stock at the strike price).

Do you need 100 shares to exercise a put?

Since options almost always trade in round lots, 100 shares will have to fund the put exercise, or a margin account must satisfy the difference. For your situation, trading out of both positions would be probably be best.

What is a put holder?

A put option gives the holder the right, but not the obligation, to sell a stock at a certain price in the future. When an investor purchases a put, she expects the underlying asset to decline in price; she may sell the option and gain a profit.

What happens when a put option is executed?

Simply put (pun intended), a put option is a contract that gives the option buyer the right — but not the obligation — to sell a particular underlying security (e.g. a stock or ETF) at a predetermined price, known as the strike price or exercise price, within a specified window of time, or expiration.