There are two styles of options that trade in the U.S.: American and European. An American style option may be exercised at any time, by the holder, during the life of the contract. A European style option may only be exercised by the holder at expiration.

If an investor who is long an option decides to exercise the option, the OCC will randomly assign the exercise notice to a broker dealer who is short that option. The broker dealer must then assign the exercise notice to a customer who is short that option. The broker dealer may use any fair method approved by the exchange for randomly assigning exercise notices. If the broker dealer uses the FIFO (first in first out) method of assignment the customer with the oldest open short position will receive the assignment. Any changes to the broker dealer’s assignment practices must be approved by the exchange prior to implementation.

TAKE NOTE!

A broker dealer who receives an exercise notice of 25 contracts or more may assign that notice to any customer who has an open short option position of 25 contracts or more under the “block assignment” exemption.

Need Help Passing Your Series 4 Exam?

Taxation Of Options

Related Articles
  1. Trading

    4 Reasons To Hold Onto An Option

    There are times when an investor shouldn't exercise an option. Find out when to hold and when to fold.
  2. Trading

    Dividends, Interest Rates And Their Effect On Stock Options

    Learn how analyzing these variables are crucial to knowing when to exercise early.
  3. Trading

    Three Ways to Profit Using Call Options

    A brief overview of how to provide from using call options in your portfolio.
  4. Investing

    What are Options Contracts?

    An explanation of options contracts, call options and put options.
  5. Managing Wealth

    Get The Most Out Of Employee Stock Options

    These plans can be lucrative for employees - if they know how to avoid unnecessary taxes.
  6. Trading

    Options Pricing

    Options are valued in a variety of different ways. Learn about how options are priced with this tutorial.
  7. Investing

    What Does a Dealer Do?

    Dealers possess certain qualities that distinguish them from brokers and traders.
Frequently Asked Questions
  1. When are Beneficiaries of a Will Notified?

    Learn when the beneficiaries of a will must be notified, and understand how this requirement varies depending on whether ...
  2. Why Does Larry Page Pay Himself a $1 Salary?

    Google co-founder Larry Page continues to take an annual salary of only $1 as chief executive officer.
  3. What is Common Stock and Preferred Stock?

    Learn about the differences between common and preferred shares. Explore situations where preferred shares have more favorable ...
  4. Can CareCredit be Used for Family Members?

    Learn more about the available options that CareCredit offers to pay for out-of-pocket medical procedures with little to ...
Trading Center