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Option Trading - Table of Contents
Option Trading: Option Basics
Option Trading: Buying and Selling Option
Option Trading: FAQ
Option Trading: Glossary
Option Trading FAQ
What is the expiration date?
The last day (in the case of American-style) or the only day (in the case of European-style) on which an option may be exercised.
For stock options, this date is the Saturday immediately following the third Friday of the expiration month; however, brokerage firms may set an earlier deadline for notification of an option buyer's intention to exercise. If Friday is a holiday, the last trading day will be the preceding Thursday.
What is a European-style and American-style option?
American-style is an option contract that can be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options are American-style. All stock options are American-style. European-style is an option contract that can only be exercised on the expiration date.
What is the last full day of trading in the Equities, OEX and SPX? How do they settle?
The last full day of trading for Equities and OEX is the 3rd Friday of the month. They settle on the close. The last full day of trading for SPX is the Thursday before the 3rd Friday of the month. SPX settles on the opening of the 500 stocks that make up the index on Friday morning. Friday holidays push all of these dates ahead one day.
What does it mean to be exercised or assigned on an option transaction?
When you buy an option you have the right to either purchase or sell stock at a predetermined price. When and if you choose to purchase or sell stock at that predetermined price you are said to be " exercising your right".
When you sell an option you now have the obligation to sell or purchase stock. You have or may not have to fulfill that obligation. You are considered to be "assigned" if you are being required to fulfill that obligation. Typically this occurs when the option is in-the-money.
What happens to my option if i do nothing at expiration date?
For the Buyer :
you will lose the premium you paid for the option plus whatever commissions and fees incurred on that transaction.
For the Seller :
if your option is in-the-money you will most likely be assigned and you will have to sell or buy stock.
if your option is out-the-money, and since it will not be excercised, you have earned the premium.
When can I anticipate being assigned?
You can anticipate being assigned any time your option becomes in the money.