Automatic option exercise and assignment at expiration…

…is what the title of this page should be. This seemed better for lazy SEO.

This week, Rockydennis Presents’ owner and RDP Arkenstone CEO/Founder made an egregious error in judgement. You see, what had happened was…

I was writing call spreads using both LEAPS and stock shares. Some of those spreads happened to expire in the money. What I failed to take into account is that Robinhood doesn’t let you specify whether to sell your actual shares if exercised, or exercise your deep ITM call to acquire shares to sell.

The stock in question is ACB. I should have taken my own advice and avoided buying weed stocks. The shares I held had a cost basis of $13.50. The LEAP had a breakeven of only $9.38. I had originally written a call against the shares for $13 or something. The LEAP was to write the $9.50 strike against, which I placed as a 2-option order. Makes sense.

Think to the image on the Rockydennis Presents Blog main page, versus the image above. The picture above shows a practical illustration, if slightly inaccurate. The main page image shows some middle-men involved, as you will recall.

There’s another component to this, as well. Robinhood will automatically try to close expiring options prior to market close, and there’s no guarantee that they will or how they’ll go about it. Well, sort of, since it’s almost definitely 100% automated.

“But Rocky!”, you say, “We always close our positions before market close!”.

Fair point, except obviously we don’t. If you’re like me, you work at a job on a regular basis. Friday afternoon happens to be a really bad time for me to be at home on the computer, and if my queued option close orders don’t close, then I’m boned. For $400.

Thankfully, that $400 is…not negligible, but not a big deal. A couple of years ago, it would have been the biggest deal.

Aside from the cautionary tale, you probably have some questions regarding this options story. Primarily, why are you using Robinhood? Because I like it. People are allowed to like things. Also, it’s pretty much free to play with options. Let’s compare some brokerage’s fees.

Robinhood - Free. The only stuff they charge for is paper documents and mail, some kind of electronic funds transfer called ACATs, and a fee for margin use.

E-trade - $0 commission on US stocks/options/ETFs. $0.65/$0.50 options contract (depending on trading frequency). $1.50 Futures contracts. $1 per bond. $20 fee for mutual funds.

Webull - Pretty much the same as Robinhood, but you pay the regulatory options contract fees. Also, $75 to transfer a stock out of Webull. Ouch.

TD Ameritrade - $50 no-load mutual funds, $0.65 options, $2.25 futures.

Schwab - $0.65 options contracts, $2.25 futures, $2.25 futures options, $0-50 mutual funds, depending. $1 bonds.

TradeStation - There’s two sets of fees, depending on your pricing plan. Stock options are $0.65/0.50, futures $1.50/0.85 per contract per side, futures Micro E-Mini $0.50, futures options $1.50. Index options have an additional $1.00 fee. Direct routing is $1.00. Goddamn.

Interactive Brokers - $0.65 options, $14.95 mutual funds, $0.85 futures

Fidelity - $0.65 options, $49.95 no-fee mutual funds, $75 fee mutual funds, $1 bonds

In doing my searches of this information, ~ midnight, 5/30/2021 - I did not find any fees for exercise or assignment of options. I did, however, find several websites stating that one or the other of these brokers charge fees for assignment. This may have been true at one point in time, but I think it’s just plain bad information.

One site says that in 2021 Td Ameritrade charges $4.95 if your option is exercised/assigned. TD Ameritrade says they do not charge exercise/assignment fees.

The only question remaining now is…which brokers will let me write LEAPS-covered calls while I own shares, and sell the LEAPS before the shares…. Nope. Not doing it. I have a better idea.

TLDR

From now on, I’ll always MANUALLY CLOSE MY SPREAD POSITIONS BEFORE EXPIRATION.

And also not buy weed stocks.