Options Exercise, Assignment And Settlement
Again, we return to the world of options briefly to touch on a few procedural elements that affect the futures markets.

Process of Assignment
"Assignment" is the designation by a clearinghouse of an option writer who will be required to buy (in the case of a put) or sell (in the case of a call) the underlying futures contract or security when an option has been exercised, especially if it has been exercised early.

Final Trading and Exercise Dates
Depending on the exchange's rules and the nature of the underlying commodity, the "last day of trading" may be the same as the "expiration date" or may occur a few business days earlier. The exchange generally times these according to a cycle, usually monthly or quarterly.

For example, on the Philadelphia Stock Exchange (PHLX), where currency options are bought and sold, contracts expire in January, February, March, June, September and December. The last day of trading is also the expiration date: the Friday preceding the third Wednesday of the month.

The United Currency Option Market (UCOM), the PHLX subsidiary that governs options trading there, is also a good example to discuss exercise dates. That's because UCOM permits both European- and American-style options. A European-style option can only be exercised on the expiration date, while an American-style option can be exercised on any date from the inception of the position through that final day of trading. Other things being equal, an American-style option will have a higher premium than a European-style option for the same underlying assets. That's because there is a value to the right to exercise the option early.



Review And Quiz

Related Articles
  1. Trading

    American Vs. European Options

    These two options have many similar characteristics, but it's the differences that are important.
  2. Investing

    American Vs. European Options—Key Differences

    There are four key differences between American- and European-style options.
  3. Trading

    Exploring European Options

    The ability to exercise only on the expiration date is what sets these options apart.
  4. Trading

    Dividends, Interest Rates And Their Effect On Stock Options

    Learn how analyzing these variables are crucial to knowing when to exercise early.
  5. Financial Advisor

    The Best Strategies to Manage Your Stock Options

    We look at strategies to help manage taxes and the exercise of incentive and non-qualified stock options.
  6. Trading

    Getting Acquainted With Options Trading

    Learn more about stock options, including some basic terminology and the source of profits.
  7. Trading

    Options Pricing

    Options are valued in a variety of different ways. Learn about how options are priced with this tutorial.
Frequently Asked Questions
  1. What are the Differences Between Ex Works (EXW) and Free On Board (FOB)?

    Learn about Ex Works and Free on Board, the main difference between these Incoterms, and the responsibilities of buyers and ...
  2. What are Common Examples of Monopolistic Markets?

    Discover what causes real instances of market monopoly, how it persists and where monopoly privilege is most common in the ...
  3. What is the gold standard?

    The gold standard is a monetary system where a country's currency or paper money has a value directly linked to gold, but ...
  4. What's the most expensive stock of all time?

    The most expensive publicly traded stock of all time is Warren Buffett’s Berkshire Hathaway.
Trading Center