Does Robinhood Automatically Exercise Or Sell Your Options?


Does Robinhood Automatically Exercise Or Sell Your Options?

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Any options traders looking to use Robinhood should understand how the platform works so that you can get the most out of it. One of the things that many traders wonder is if Robinhood will automatically take care of their options for them.

Robinhood will automatically exercise or sell your options. How they do it depends on whether it’s a call or put, as well as what settings you have selected. 

If you don’t have enough funds in your account to purchase the shares that you have a call for then Robinhood will automatically sell your call if it’s in the money. 

The platform will exercise your options before they expire if you have enough money in your account, making it beneficial for traders who don’t often check the app or forget the expiry date of their options. 

In this article, I’ll explore when Robinhood exercises or sells options and how you can stop the app from selling your options. I’ll also cover why Robinhood automatically sells your options and why it won’t automatically sell uncovered calls or puts. 

To see the most popular books about option trading just click here. 

When Does Robinhood Automatically Exercise Or Sell Options?

Robinhood will automatically exercise or sell your options when the contract is in the money – it always does this on the expiration date. The platform does this so that investors who don’t have time to check their options (or forget to) don’t lose out on all of their gains. 

It’s worth noting that many other Robo advisor platforms also do this. You can also exercise or sell the contracts early. To do this, you go to the contract on the platform, then select the “Exercise” button. Robinhood will send you a prompt to ensure you want to exercise the contract right now. 

This process means your order will go through allowing you to buy the shares at the strike price. 

According to Robinhood, they will exercise an option contract that is $0.01 or more in the money. For example, if the strike price is $50 and the contract closes at $50.01, the platform will attempt to exercise it. You’ll also need to have the right amount of funds and underlying stock in your account to exercise. 

Robinhood provides you with all the necessary tools to manage your account.

Robinhood will automatically sell the option contract before the market closes if you don’t have enough shares or buying power to exercise the option. The platform uses “risk checks,” which are very useful in determining whether or not your account can handle exercising a contract.

Can You Stop Robinhood From Automatically Selling Or Exercising Options?

The last hour of trading can be highly profitable for option traders on the day of expiry. You might get excited seeing the price of your options spike up only to realize that they were automatically sold by Robhood! 

Is there any way to turn that setting off in Robinhood so it won’t automatically sell or exercise the option? 

There is no way to turn off the automatic selling or exercising of options on Robinhood. However, you can keep an option from being sold early if you have enough cash in your account to cover exercising the option. 

Robinhood will then not automatically sell the option which gives you time to trade it before it expires. 

Setting a Stop Limit Order On Options

There may be some instances where you don’t want to lose out on the profits that you have. In these cases, you can set a sell stop-limit order. This limit allows you to add another setting that if an option price drops below a certain amount Robinhood will sell the option. 

You can use this limit to set a stop price. When the options hit that stop price, the platform will automatically sell your option contract. 

You can select a Buy Stop Limit or a Sell Stop Limit.

  • Sell Stop Limit. The stop price is lower than the current price of the contract. Automatic sales occur when contracts are higher than the limit price.
  • Buy Stop Limit. The stop price is above the current contract price. If the contract raises, the limit goes into effect. Automatic buying occurs when the contracts are less expensive than the limit.

Why Robinhood Automatically Sells Your Options

Robinhood has many features that are in place to navigate risks. One of the reasons it sells automatically is to protect your money and lower your risk. 

The platform will sell when your contract is in the money after reviewing your account. If you don’t have enough buying power in your trading account to purchase the shares, the site may then sell the option contract for you.

The auto-sell feature is particularly beneficial if you’re a beginner to options trading and are only just starting to find your footing about how it works. 

Why Robinhood Won’t Allow Uncovered Calls and Puts

Robinhood doesn’t allow options trades to use uncovered calls or puts. When you take a naked position, you potentially put yourself at risk of unlimited losses. Since Robinhood tries to lower the risk that traders experience, the platform won’t allow you to make uncovered strategies. 

The platform also has different levels, which allow you to try various strategies. For instance, those at Level 3 can use more advanced options trading strategies than those at Level 1 or 2. If you want to use more options strategies, you’ll need to receive approval from Robinhood.

To do this, go to the Settings menu, then tap on “Options Trading.” From there, you’ll receive a prompt with any questions. If you pass, Robinhood should approve you to move up to the next level.

This YouTube video covers how you can receive approval for working with more strategies on Robinhood: 

Will Robinhood Charge To Automatically Exercise Options?

Many traders also wonder if the platform charges for handling your options contract automatically. While you will need to have money in your account for dealing with options, you won’t need to pay Robinhood.

Robinhood doesn’t charge additional fees when buying or selling your options. The platform also doesn’t have commissions or assignment fees. Robinhood is cost-efficient for options traders to use, and there are no automatic fees associated with your options contract.

Since there aren’t any fees that come with using Robinhood, you can put more of your money towards your options investments. Overall, you won’t have to worry about any surprise fees or commissions.

Final Thoughts

To summarize, Robinhood will exercise or sell your options for you on the day of expiry. Many different kinds of traders can benefit from this. Many professionals use stop limits to control automatic selling prior to  the expiration tk help lock in profits. 

One advantage of Robinhood’s automatic exercise feature is that the app does not charge extra money for it, so you don’t have to worry about losing out on money if you forget to exercise your options yourself.

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