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Welcome to your source for answers to questions about option concepts, strategies, and terminology. A new question and answer is published each week. To view the Ask the Institute archives, click the "Ask the Institute Archive" link below.

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This week's question:

DATE: October 13, 2008

QUESTION:
Due to March expiration on 3/20 broker advised "do not exercise notice" needed to be placed be for 3:20pm.Please explain all information re "DO NOT EXERCISE NOTICE"

ANSWER:
Under OCC rules, options on individual stocks are automatically exercised if they are $0.01 in the money (1 cent).However, option owners are not required to exercise.Therefore, your broker is advising you of their procedures to avoid automatic exercise, if you choose to not exercise.

If you are not familiar with how to get a "Do Not Exercise" notice, how to fill it out or how to submit it, then you should contact your broker for an explanation.

If an option is 1 cent or more in-the-money, and if you want to exercise it, then you do not have to do anything.Remember, you also have the right to sell any owned options prior to expiration.



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