Vocabulary

Exercise vs expiration

Expiration is the contract endpoint. Exercise is the holder using the option right. Assignment is the short writer being selected to fulfill the obligation.

Four different actions

• Sell to close: exit the long option through the market.
• Buy to close: exit the short option through the market.
• Exercise: use the contract right.
• Expire: let the contract reach its endpoint, subject to procedures and instructions.

Many expiration surprises come from mixing these actions together. Write down which one you actually intend.

Primary reading: OIC options basics and Expiration Friday · OIC exercising options · OIC options exercise FAQ · FINRA options overview and expiration risk · OCC Options Disclosure Document