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

    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.
  3. 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.
  4. Trading

    Three Ways to Profit Using Put Options

    A brief overview of how to profit from using put options in your portfolio.
  5. Trading

    Three Ways to Profit Using Call Options

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

    What are Options Contracts?

    An explanation of options contracts, call options and put options.
  7. Personal Finance

    What You Need to Know About Your Stock Options

    Know these things and talk to a professional to get the most out of your employee stock options.
  8. Trading

    Getting Acquainted With Options Trading

    Learn about trading stock options, including some basic options trading terminology.
Frequently Asked Questions
  1. China vs Hong Kong stock: Is H-shares and A-shares the same?

    Learn what the difference between A-shares and H-shares of publicly listed companies in China and Hong Kong stock exchange. ...
  2. Why does time value of money (TVM) assume that a dollar today is worth more than a dollar tomorrow?

    Learn about time value of money, or TVM, and how a present value calculator is used to determine the value of money received ...
  3. Is a private company required to show financial information?

    Understand whether a private company is required to disclose financial information to the public. Learn what is required ...
  4. Is savings and loan company different from commercial banks?

    Find out how a savings and loan (S&L) company, sometimes also known as a thrift or savings institution, focuses on different ...
Trading Center