Option Expiry in Roth IRA
Here’s a summary of the main issue and solutions discussed in the conversation:
- Main Problem: The user is unsure what will happen to their option in a Roth IRA that is expiring ITM, given they do not have sufficient cash to buy the underlying shares.
- Solution 1: Fidelity reviews accounts on expiration day; if the account cannot support the exercise, they may liquidate the option before expiration.
- Solution 2: Options that are ITM by $0.01 or more will be automatically exercised, regardless of cash availability.
- Solution 3: The user can take action before expiration to avoid liquidation or can call Fidelity to request a Do Not Exercise (DNE) for the contract.
Here’s the full thread
Hello,
I have an option expiring soon in my Roth IRA. I currently do not have sufficient cash to buy 100 shares at the option strike. What will happen when my option expires ITM? Will it auto-exercise and give me the cash (Kind of like a european option) or will it just not exercise?
Will I have to deposit money or close out my option before expiry, or can I just let it expire ITM? Thank you!
Hi, @Dew!
Fidelity has a risk mitigation process where every account that has an expiring option is reviewed on the expiration date to ensure that the exercise or assignment of the expiring contracts in the account can be supported. If exercise or assignment cannot be supported by the account (i.e., insufficient buying power or equity, creating cash debits or short positions in a non-margin account, etc.), Fidelity reserves the right to sell-to-close the option prior to expiration per the terms of our Options Agreement.
Options in the money (ITM) by $0.01 or more at expiration are automatically exercised regardless of whether the account can support it. As a result, we encourage you to take action on expiring positions as soon as possible to avoid a possible liquidation. A message is sent to the secure message center on your Fidelity.com profile the week of expiration as a reminder.
Alternatively, you can also call us if you’d like to enter a Do Not Exercise (DNE) on the contract. Our representatives can enter early option exercise requests until 5 p.m. ET on market days. To contact our 24/7 customer service team, click the link below:
Contact us: https://www.fidelity.com/customer-service/contact-us (1/2)
If the contract is exercised without sufficient cash or margin to cover the resulting debit and a deposit is not made the following business day, Fidelity may take action to settle the balance by liquidating the shares purchased. Please note that, for cash accounts, this may result in a trading violation that could result in trading restrictions.
It is the client’s responsibility to make sure all transactions in their IRA do not and will not constitute a prohibited transaction as defined under the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code (IRC), and related regulations, interpretations, and guidance and are otherwise in compliance with all applicable laws, rules, and regulations.
Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Before trading options, please read the Characteristics and Risks of Standardized Options[http://www.optionsclearing.com/about/publications/character-risks.jsp. Supporting documentation for any claims, if applicable, will be furnished upon request. (2/2)
Awesome, that makes sense. Thank you!
Hey, that’s what we’re here for! Let us know if we can help with anything else!🟢