Every option has an expiration date. After that date, the contract is gone. The question is what state the contract was in when the bell rang and what that means for your account on Monday morning.
Three buckets. Out of the money: expires worthless. In the money: gets exercised. At the money: depends on the closing print and your broker.
Options that are in the money by one cent get automatically exercised by the Options Clearing Corporation. Your broker handles the mechanics overnight. Monday morning you wake up with shares instead of contracts.
Long call expires in the money: you buy shares at the strike price. Long put expires in the money: you sell shares at the strike price. If you do not have the cash or shares for the assignment, the broker uses margin and you owe.
Selling options is the side that bears assignment risk. Short call in the money at expiration: you sell shares at the strike. Short put in the money at expiration: you buy shares at the strike.
If you sold a put with a $50 strike and the stock closes at $48, you are buying 100 shares at $50 on Monday. The shares are worth $4,800 but you paid $5,000. The premium you collected partly offsets that.
Stocks that close right at the strike create pin risk. The option might or might not get exercised. You might wake up Monday with shares you did not expect. Or without shares you thought you had.
My rule: if a short option is within twenty five cents of the strike going into the close, I close the position. Pin risk costs more in stress than the premium is worth.
The third Friday of the month moves more than other days. Volume picks up. Spreads tighten on liquid names. Wider spreads on less liquid names because market makers are hedging their books.
The last hour of expiration day can be choppy. Big positions get unwound. New monthly contracts open. Be careful with new entries in the final hour.
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