Can I Withdraw Money From Stocks? Understanding Expiration, Exercise, and Assignment on Robinhood

Many investors choose to invest in stocks because they offer the potential for significant returns. However, unlike cash or other liquid assets, stocks can’t be directly withdrawn. To access the money tied up in your stocks, you need to sell them first. This process involves understanding key concepts like expiration, exercise, and assignment, especially when dealing with options contracts on platforms like Robinhood.

Expiration: The Deadline for Your Options Contract

Every options contract has a set expiration date. This date significantly impacts its value as it limits the timeframe within which you can buy, sell or exercise the contract. Once the expiration date passes, the contract becomes worthless unless exercised.

Here are some important things to keep in mind as the expiration date approaches:

• Automatic Exercise: Robinhood will automatically attempt to exercise any options contract you own that is $0.01 or more in-the-money, provided you have the necessary buying power (for call options) or underlying shares (for put options).
• Market Sale: If you don’t have enough buying power or underlying shares, Robinhood may attempt to sell the contract in the market for you within the last 30 minutes before the market closes on the expiration date.
• Risk Management: Robinhood’s risk checks are designed to close positions based on their value, implied risk, and your portfolio value, among other factors.

Exercise: Turning Your Options Contract into Shares

If your option is in-the-money at the market’s close, Robinhood will typically exercise it for you automatically at expiration. However, you can also exercise your options contract early through the app:

1. Navigate to the options position detail screen.
2. Select “Exercise.”
3. Follow the steps to exercise your contract.

Timing:

• Before Expiration: Early exercise requests placed during regular market hours (9 AM-4 PM ET) will be submitted immediately. Contact Robinhood before 5 PM ET to cancel an exercise request.
• Expiration Day: You can submit an early exercise request after 4 PM ET, but it will be queued for the next trading day. You can cancel a pending exercise request until 11:59 PM ET.

Confirmation:

• You’ll receive an in-app confirmation after exercising an option, along with an email and notification confirming the exercise or assignment before the next trading day.

Do Not Exercise (DNE) Request:

• If your option is out-of-the-money, Robinhood will take no action, and the contract will typically expire.
• If you’d like to submit a DNE request, contact Robinhood before 5 PM on the expiration date.

Assignment: Fulfilling Your Contractual Obligation

When you sell-to-open an options contract, you can be assigned at any point before expiration, regardless of the underlying share price. This means you’ll be obligated to fulfill the terms of the contract.

Depending on the collateral held for a short contract, a few different things can occur:

• Decreased Buying Power: Early assignment may result in decreased buying power, as the positions you hold are used to calculate your buying power.
• Account Deficits: Early assignment may also result in an account deficit if it causes you to use more buying power than you have available.
• Margin Calls: Early assignment may result in a margin call if it causes your account value to fall below your margin maintenance requirement.

Unassigned Anticipated Assignment: A Rare Scenario

In rare cases, the in-the-money short option of a spread won’t get assigned. This can happen if the counterparty files a DNE request for their in-the-money option, or a post-market movement shifts the option from in-the-money to out-of-the-money. In this scenario, you’ll likely be long or short the stock the following trading day, potentially resulting in an account deficit or margin call.

Early Assignment and Exercise: Understanding the Implications

Keep in mind that Robinhood can’t process an early assignment before the end of the trading day, so they can’t exercise the long leg until the next trading day (at the earliest). This is because the Options Clearing Corporation (OCC) doesn’t notify Robinhood of your assignment until after the market closes.

Pending Shares: Understanding the Timeframe

If an option is exercised before expiration:

• During Market Hours: The associated shares will show in your account immediately.
• After 4 PM ET: The associated shares will remain pending until the exercise has cleared.

Note: Some underlying assets are eligible for late-close options trading until 4:15 PM ET. Check Robinhood’s options trading hours for details.

Finding Your Trade Details: Easily Accessing Information

To find your trade details:

1. Select “Account” (person icon) in the app.
2. Select “Menu” (3 bars).
3. Select “History.”
4. Select the option you’re looking for.

Options Dividend Risk: Avoiding Unwanted Obligations

Dividend risk is the risk that you’ll get assigned on a short call position (either as part of a covered call or spread) the trading day before the underlying security’s ex-dividend date. If this happens and you don’t own 100 shares of the stock, you’ll open the ex-date with a short stock position and be responsible for paying that dividend yourself.

You can avoid this risk by closing any position that includes a short call option at any time before the end of regular market hours on the trading day before the ex-date. Robinhood may also take action in your brokerage account to close any positions that have dividend risk the trading day before an ex-dividend date.

Understanding expiration, exercise, and assignment is crucial for effectively managing your options contracts on Robinhood. By familiarizing yourself with these concepts, you can make informed decisions about when to sell, exercise, or assign your options, maximizing your potential returns and minimizing your risks.