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

    Exploring European Options

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

    Options Hazards That Can Bruise Your Portfolio

    Learn the top three risks and how they can affect you on either side of an options trade.
  4. Trading

    Three Ways to Profit Using Call Options

    A brief overview of how to provide from using call options in your portfolio.
  5. Trading

    Options Pricing

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

    Trading OEX Options: The Risk Of Early Exercise

    Exercising early can benefit options traders, but only when trading American-style options.
  7. Trading

    Customize Your Trading With Flex Options

    These unique instruments take options trading to a whole new level.
  8. Trading

    Getting Acquainted With Options Trading

    Learn more about stock options, including some basic terminology and the source of profits.
Frequently Asked Questions
  1. Where else can I save for retirement after I max out my Roth IRA?

    The first option to explore is to determine if you can contribute to a 401(k), 403(b), or 457 plan at work. If your employer ...
  2. How did George Soros "break the Bank of England"?

    In Britain, Black Wednesday (September 16, 1992) is known as the day that speculators broke the pound. They didn't actually ...
  3. What counts as "debts" and "income" when calculating my debt-to-income (DTI) ratio?

    It's important to know your debt-to-income ratio because it's the figure lenders use to measure your ability to repay the ...
  4. Who are Monsanto's main competitors?

    Learn about Monsanto Company's two main operating divisions and its main competitors within each sector, including The Mosaic ...
Trading Center