Automatic Exercise

Business, Legal & Accounting Glossary

Definition: Automatic Exercise


Automatic Exercise


Full Definition of Automatic Exercise


The procedure that prevents in-the-money equity options from expiring and becoming worthless. In this procedure, the clearing firm will exercise certain kinds of options that are in the money without instruction from the option holder, thus allowing option holders who may not be monitoring an option to still capture a profit. Not all options are subject to automatic exercise. Certain options (known as “capped-style options”) become subject to automatic exercise if the price of the underlier hits a certain price (known as the “cap value”), regardless of when the price is achieved (this is only possible in the case of an American-style option). Other options will be subject to automatic exercise just before expiration and at no other time. In such cases, the trigger for automatic exercise is either when the option is in the money, or when it is in the money by a certain amount.


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Definition Sources


Definitions for Automatic Exercise are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 20th November, 2021 | 0 Views.