This list represents some of the most frequently asked questions relating to the Chicago Board Options Exchange and options trading in general.
Options Exercise, Expiration, Assignment and Settlement
What does it mean to be exercised or assigned on an option transaction?
When you buy an option you have the right to either purchase or sell stock at a
predetermined price. When and if you choose to purchase or sell stock at that
predetermined price you are said to be " exercising your right".
When you sell an option you now have the obligation to sell or purchase stock.
You have or may not have to fulfill that obligation. You are considered to be
"assigned" if you are being required to fulfill that obligation. Typically this
occurs when the option is in-the-money.
What happens to my option if I do nothing?
If you bought a call or put you would lose the premium you paid for the option
plus whatever commissions and fees incurred on that transaction. If you sold a
call or a put and your option is in-the-money you will most likely be assigned
and you will have to sell or buy stock.
When can I anticipate being assigned?
You can anticipate being assigned any time your option becomes in the money.
Individual investors may be automatically assigned or exercised at expiration
by The Options Clearing Corporation if the option is .25 of a point or more in
the money. Also, most brokerage firms have rules under which options will be
automatically exercised; check with your broker to determine which automatic
exercise rule may apply.
What is the expiration date?
The last day (in the case of American-style) or the only day (in the case of
European-style) on which an option may be exercised. For stock options, this
date is the Saturday immediately following the third Friday of the expiration
month; however, brokerage firms may set an earlier deadline for notification of
an option buyer's intention to exercise. If Friday is a holiday, the last
trading day will be the preceding Thursday.
What is the last full day of trading in the Equities, OEX and SPX? How do they
settle?
The last full day of trading for Equities and OEX is the 3rd Friday of the
month. They settle on the close. The last full day of trading for SPX is the
Thursday before the 3rd Friday of the month. SPX settles on the opening of the
500 stocks that make up the index on Friday morning. Friday holidays push all
of these dates ahead one day.
What is a European-style and American-style option?
American-style is an option contract that can be exercised at any time between
the date of purchase and the expiration date. Most exchange-traded options are
American-style. All stock options are American-style. European-style is an
option contract that can only be exercised on the expiration date.
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Options involve risk and are not suitable for all
investors. Prior to buying or selling an option, a person must receive a copy
of Characteristics and Risks of Standardized
Options (ODD). Copies of the ODD are available from your broker, by
calling 1-888-OPTIONS, or from The Options Clearing Corporation, One North
Wacker Drive, Suite 500, Chicago, Illinois 60606. The information on this
website is provided solely for general education and information purposes and
therefore should not be considered complete, precise, or current. Many of the
matters discussed are subject to detailed rules, regulations, and statutory
provisions which should be referred to for additional detail and are subject to
changes that may not be reflected in the website information. No statement
within the website should be construed as a recommendation to buy or sell a
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