What Are Options Assignment and Exercise Fees?
Stock options can be confusing if you’ve never dealt with them before. This article covers two parts of options trading known as “exercise” and “assignment,” plus any fees linked to them. Keep reading to learn more about options assignment and exercise fees.
What are options?
Let’s begin with the basics. Stock options are contracts that let buyers purchase or sell an underlying asset. Each contract has an expiration date, and by that date the buyer must decide whether to exercise the option. Most brokers offer options trading, but if you’re choosing a broker, make sure they support options trading and check their fees (we’ll talk about those soon).
Here’s an example to explain options more clearly:
Suppose you’re interested in trading ABCD Corporation (ABCD). ABCD trades at $25 per share, and you believe the price will go up. You decide to buy a call option for $150 that covers 100 shares with a strike price of $35, and it expires in one month.
If ABCD never reaches $35 by the option’s expiration, you’ll lose the $150 you spent on the option. But if the price hits or passes $35, you’ll profit. That profit is the difference between the market price and the strike price, multiplied by 100 shares, minus the amount you paid for the option.
Here’s how it would look if ABCD reaches $35:
$25 per share x 100 = $2,500 (market price)
Shares sold for $35 x 100 = $3,500 (strike price)
Profit is $1,000
Subtract $150 for the option
Net profit is $850
As you can see, when everything goes well, options trading can be profitable. Here, you earned $850 on a $150 investment. Next, let’s discuss “exercise” and “assignment.”
Exercise and assignment
When an option is exercised, it means a call holder buys the stock, and a put holder sells the stock. The Options Clearing Corporation (OCC) is a clearinghouse that oversees options traded in the U.S., under the SEC’s supervision. When someone exercises an option, the OCC picks a brokerage firm to carry out the exercise. That broker then decides which customer gets the assignment.
If you’re assigned, you have to sell your shares, often called having your shares called away.
Now let’s look at the fees connected to exercise and assignment.
Options assignments and exercises fees
Let’s recap quickly.
As we’ve seen, buying an option gives you the right to buy a stock at a specified strike price on or before the expiration date.
If you choose to use that right and buy the stock at that price, this is called an exercise. If the clearinghouse orders the contract to buy or sell the underlying stock from the option holder, that’s an assignment. In both cases, some brokers might charge fees.
These days, fewer brokers charge assignment or exercise fees. This is part of a broader move toward low or no-cost brokers.
TradeStation is one broker that does charge these fees: $14.95 for both exercise and assignment. On the other hand, you might pick a broker for more than just their options fees. For example, Webull has no commissions on options trades and has good resources for investors.
Below is a short list of standard per-trade and per-contract fees for a few common brokers:
E*Trade - $0 per options trade, $0.65 per contract
Interactive Brokers - $0 per options trade, $0.25-$0.65 per contract
TastyTrade - $0 per options trade, $1 per contract (opening trades only)
Charles Schwab - $0 per options trade, $0.65 per contract
Webull - $0 per options trade, $0 per contract
While assignment and exercise fees aren’t common anymore, it’s still smart to check a broker’s fee schedule if you’re serious about options trading.
Wrapping up
Options trading isn’t for beginners, so make sure you do your research and understand how these trades work. If you’re shopping for a broker for options trading, it’s wise to see if they charge exercise and assignment fees. Fortunately, these fees are rare now, and some brokers (like Robinhood) don’t even charge per-contract fees. All this makes options trading more accessible to regular investors, but you should still be careful.
Updated on 1/7/2025.
|