Exercise By Exception
In the U.S., for the convenience of brokers, who would otherwise have to request exercise of all in the money options, the Options Clearing Corporation will automatically exercise any option that is set to expire in the money by 1 cent or more. This is called "exercise by exception". A broker or holder of such options may request that they not be exercised by exception. The price of the underlying security used to determine the need for exercise by exception is the price of the regular-hours trade reported last to the OCC at or before 4:01:30 pm ET on the day before expiration. This trade will have occurred during normal trading hours, i.e., before 4:00 pm. It can be any size and come from any participating exchange. The OCC reports this price tentatively at 4:15 pm, but, to allow time for exchanges to correct errors the OCC does not make the price official until 5:30 pm.
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