Educational only, not tax, legal, or financial advice. Rules vary by broker and situation — verify specifics with your broker or a professional.
An option that finishes even $0.01 in the money at expiration is typically auto-exercised — which can hand a seller an unwanted stock position over “just a penny.” It’s a classic expiration trap.
The trap
Clearing houses auto-exercise options that expire ITM by a threshold as small as $0.01 (“exercise by exception”). So a call you sold that closes a cent ITM gets exercised, and you’re assigned 100 shares per contract — a real position from a trivially-ITM option. If you assumed it would expire worthless and didn’t close it, that’s a surprise (and possibly a margin call).
Who it hits
It bites sellers who let a near-the-money short option ride to expiration. For buyers, a penny-ITM long option auto-exercises into a share position too, which is why you sell before expiration to avoid unwanted shares. Also beware the after-hours move: an option OTM at 4pm can drift ITM in post-close SPY trading and still get exercised.
A penny ITM is 100 shares per contract. “Barely in the money” at expiration is still fully in the money for auto-exercise.
What it means for a scalper
The clean rule: don’t hold options to expiration — close before the bell and the penny-ITM trap can’t touch you. NoVo’s approach of exiting before the close sidesteps it entirely. It’s a bigger risk for premium sellers who let positions expire.
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NoVo is a software tool for market analysis, not financial advice. This article is general education, not investment advice. Options trading involves substantial risk of loss, up to and including your entire capital. NoVo makes no guarantee of profit, win rate, or performance, and past results do not predict future outcomes. You are responsible for your own broker account, configuration, and trading decisions.
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