Ask the Institute

DATE: September 23, 2013

QUESTION:

The CBOE website states Russell 2000 Index options, which are European-style, "generally" may be exercised only on the last business day before expiration. What does the word "generally" mean, and is there ever a situation when assignment can occur earlier?

ANSWER:
Let's assume that the Exchange is closed on a Friday. Perhaps it is closed for a holiday, a government mandate or because of some unforeseen event. In any one of these proposed scenarios, Friday may technically be a business day. However, if the market is closed, then it would be impossible to exercise on that day.

In the case of such an unforeseen event, the Exchange would allow options to be exercised either on the day before the last business day or the next business day. Expiration would depend on the unique circumstances that caused this inability to exercise on that Friday. Therefore, in an interest to protect our customers, we say Russell 2000 Index options "generally" may be exercised only on the last business day before expiration. To learn more about Russell 2000 Index options, view this segment of "Ask the Institute."