Orders, Assignment and Expiration

What you will be able to do

Use the four opening and closing instructions correctly.
Price a limit order for a single option or a spread, and work it toward a fill.
Know when you can be assigned early, and how to avoid surprises around dividends and expiration.
Know what happens to an in-the-money option you forget about.
Know which rules and tax treatments apply to the options you trade.

The four instructions

Every option order says whether it opens or closes a position:

Instruction	What it does	Example
Buy to open	Starts a long position	Buy the 105 call to bet on a rise
Sell to close	Ends a long position	Sell the 105 call you own
Sell to open	Starts a short position	Write the 95 put
Buy to close	Ends a short position	Buy back the 95 put you sold

Choosing the wrong one is a real risk: “sell to open” on a call you meant to close leaves you short two calls instead of flat. Most platforms fill in the right instruction when you start from your position page; start from there when you close.

Use limit orders, priced at the mid

Option spreads (bid to ask) are much wider than stock spreads, so a market order can give away a lot. Use limit orders.

Start at the mid, halfway between bid and ask. For the 105 call at 1.61 / 1.71, that is 1.66.
If it does not fill within a minute or two, move it one or two cents toward the ask (when buying) or the bid (when selling).
Stop when the price is no longer one you want. Chasing a fill to the far side of a wide spread is paying the spread twice.

Avoid illiquid options. If the spread is more than about 10% of the option’s price, or open interest is a few contracts, you may not be able to get out at a fair price. Prefer stocks and ETFs with active options and strikes near the money.

Stops on options are risky. An option’s quotes can flicker far from fair value, especially at the open and near the close, and trigger a stop on a bad print. Many traders instead set an alert or conditional order on the stock price (for example: close the call if XYZ trades below $97). thinkorswim and most major platforms support orders triggered by the underlying’s price.

Spreads go in as one order

Enter a spread as one order at a net price, not as separate legs. For the bull call spread:

Buy 1 XYZ Nov 100 call / Sell 1 XYZ Nov 105 call, limit 1.93 debit

Both legs fill together or not at all, so you are never left holding half the trade (legging risk).
You pay one natural spread on the combination, which is often tighter than the sum of each leg’s spread.
The mid of a spread is (sum of the leg mids). Start there and work it a few cents at a time, as above.

Close spreads the same way, as one order.

Exercise and assignment in practice

Closing beats exercising. If you own the 95 call with XYZ at $103 and 10 days left, the call might be worth 8.21: 8.00 of intrinsic value and 0.21 of time value. Exercising captures only the 8.00 (you buy at 95 shares worth 103) and throws the 0.21 away, and you then have to pay for 100 shares. Selling the call captures all 8.21. Exercise early only for a specific reason, such as capturing a dividend (below).

Who gets assigned. When a holder exercises, the OCC assigns the exercise at random among brokers with customers short that contract, and the broker assigns it to a customer by its own published method. You find out the next morning. You cannot choose not to be assigned; you can only close the short option before it happens.

Early assignment and dividends

American-style options can be exercised any day, so a short in-the-money option can be assigned early. It is rare except in one situation: a short call just before the stock goes ex-dividend.

Example. You wrote a covered 95 call. XYZ is at $101, the call is worth 6.05 (6.00 intrinsic, 0.05 time value) and XYZ pays a $0.50 dividend tomorrow (the ex-date). A call holder who exercises today owns the shares tonight and collects the $0.50, giving up only 0.05 of time value. That is a good trade for them, so expect to be assigned: your shares are called away at $95 and you do not receive the dividend.

Rule of thumb: if a short call’s time value is less than the coming dividend, it is likely to be assigned the day before the ex-date. If you want to keep the shares (or the dividend), buy back the call or roll it before then.

Pin risk

If a stock closes right at your short strike on expiration day, you cannot know whether you will be assigned: holders decide after the close, and the stock can move after hours. You might wake up Monday owning (or short) 100 shares you did not expect, exposed to the weekend’s news. This is pin risk. The cure is simple: close short options that are near the money before expiration, even for a few cents.

Expiration day

Last trade: standard stock and ETF options stop trading at the close of the regular session (4:00 p.m. ET) on expiration day; a few broad index and ETF products trade a little later. Check your product’s hours.
Automatic exercise: at expiration, the OCC automatically exercises options that are in the money by $0.01 or more unless the holder instructs otherwise (exercise by exception). If you own an in-the-money call and do nothing, you will buy 100 shares per contract, and you may not have the cash for them.
Out-of-the-money options expire worthless and drop off your account.
Spreads at expiration: if XYZ finishes between your strikes, one leg is in the money and the other is not. A bull call spread with XYZ at $102.50 leaves you exercising the long 100 call into 100 shares while the 105 call expires. Close spreads before the end of expiration day unless you mean to take the shares.

Cash-settled index options

Options on broad indexes such as SPX (the S&P 500), XSP (a mini version at one-tenth the size) and NDX are European-style and cash-settled.

No early assignment is possible, because they can only be exercised at expiration.
No shares change hands. At expiration, an in-the-money option is settled in cash: (settlement value − strike) × 100 for a call.
Know the settlement time. Standard monthly SPX options are A.M.-settled: the final value is calculated from the opening prices of the 500 stocks on expiration morning, so the option stops trading the afternoon before, and an overnight gap decides your result. SPX Weeklys and daily expirations (SPXW) are P.M.-settled at the close. Check which one you are trading.

0DTE options (options traded on their expiration day, most often SPX) are extremely sensitive to the index’s every move: their gamma is enormous and their theta is the entire premium. They can multiply or vanish in minutes. Treat them as an advanced, high-risk product.

Day-trading rules in 2026

For years, U.S. margin accounts that made four or more day trades in five business days were flagged as pattern day traders and needed $25,000 in equity. On April 14, 2026, the SEC approved FINRA’s replacement of that rule. The new framework took effect on June 4, 2026:

The $25,000 minimum and the counting of day trades are gone.
Margin accounts with more than $2,000 get intraday margin buying power, set by each broker from your positions and maintenance requirements.
Brokers have until October 20, 2027 to put the new system in place, so the rules at your firm may still be changing. Check your broker’s current policy.

In a cash account, options trades settle the next business day (T+1). You can only trade with settled cash; buying with unsettled proceeds and selling before they settle can cause a good-faith violation and trading restrictions.

A note on tax (United States)

Tax is outside this course and depends on your situation, so confirm with a tax professional. Two things every U.S. options trader should know:

Options on stocks and ETFs (including SPY and QQQ) are taxed like stocks: short-term or long-term capital gains depending on how long you held them, with wash-sale rules applying.
Options on broad-based indexes (such as SPX, NDX, RUT and XSP) are Section 1256 contracts: gains and losses are treated as 60% long-term and 40% short-term regardless of holding period, and open positions are marked to market at year end. They are reported on IRS Form 6781. For an active short-term trader this can mean a lower tax rate than on the equivalent ETF options.

Costs

Most brokers charge a per-contract commission (often well under $1 a contract) plus small exchange and regulatory fees. A four-leg iron condor is four contracts to open and four to close, so costs add up on small, frequent trades. Count them in your expected return.