166:
holder of such options may request that they not be exercised by exception. The price of the underlying security used to determine the need for exercise by exception is the price of the regular-hours trade reported last to the OCC at or before 4:01:30 pm ET on the day before expiration. This trade will have occurred during normal trading hours, i.e., before 4:00 pm. It can be any size and come from any participating exchange. The OCC reports this price tentatively at 4:15 pm, but, to allow time for exchanges to correct errors the OCC does not make the price official until 5:30 pm.
157:(OCC). The OCC fulfills the contract, then selects, randomly, a member firm who was short the same option contract. The OCC then notifies the firm. The firm then carries out its obligation, and then selects a customer, either randomly, first-in, first-out, or some other equitable method who was short the option, for assignment. That customer is assigned the exercise requiring him to fulfill the obligation that he agreed to when he wrote the option.
90:– Cash-settled options do not require the actual delivery of the underlier. Instead, the market value, at the exercise date, of the underlier is compared to the strike price, and the difference (if in a favourable direction) is paid by the option seller to the owner of the option. An example of a cash-settled contract is most U.S.-listed exchange-traded index options. This settlement occurs the next business day following the trade.
1176:
84:– Physically settled options require the actual delivery of the underlying security. An example of a physically settled contract is U.S.-listed exchange-traded equity options. Delivery settles in two business days. It is the most common form of settlement. Physically settled options are mostly American style.
144:
A common strategy among professional option traders is to sell large quantities of in-the-money calls just prior to an ex-dividend date. Quite often, non-professional option traders may not understand the benefit of exercising a call option early, and therefore may unintentionally forgo the value of
165:
In the U.S., for the convenience of brokers, who would otherwise have to request exercise of all in the money options, the
Options Clearing Corporation will automatically exercise any option that is set to expire in the money by 1 cent or more. This is called "exercise by exception". A broker or
134:
is a possibility for deep in-the-money options. In this case, it may make sense to exercise the option early in order to obtain the intrinsic value (K-S) earlier so that it can start to earn interest immediately. This is somewhat more likely to be worthwhile if there is no ex-dividend date (which
118:
is a possibility whenever the benefits of being long the underlier outweigh the cost of surrendering the option early. For instance, on the day before an ex-dividend date, it may make sense to exercise an equity call option early in order to collect the dividend. In general, equity call options
44:
The option style, as specified in the contract, determines when, how, and under what circumstances, the option holder may exercise it. It is at the discretion of the owner whether (and in some circumstances when) to exercise it.
107:
by at least as much as the fees associated with the underlying transaction (e.g. the fee for subsequently selling an underlying which has been physically delivered). The exercise usually costs money as
24:
it, and thus require that the financial transaction specified by the contract is to be carried out immediately between the two parties, whereupon the option contract is terminated. When exercising a
145:
the dividend. The professional trader may only be 'assigned' on a portion of the calls, and therefore profits by receiving a dividend on the stock used to hedge the calls that are not exercised.
62:– American-style option contracts can be exercised at any time up to the option's expiration. Under certain circumstances (see below) early exercise may be advantageous to the option holder.
68:– Bermudan-style options contracts may only be exercised on specified dates. Bermudan-style options are common in the interest rate options and swaps markets.
719:
294:
111:
In most cases, options should not be exercised before expiration because doing so gives away inherent value. Selling them would almost invariably yield more.
1059:
749:
881:
617:
248:
1119:
287:
56:
date. Thus they can never be worth more than an
American-style option with the same underlying strike price and expiration date.
1054:
699:
154:
1094:
632:
486:
280:
713:
1201:
891:
28:, the owner of the option purchases the underlying shares (or commodities, fixed interest securities, etc.) at the
995:
806:
207:
1114:
1109:
764:
709:
1064:
734:
724:
592:
433:
365:
153:
Assignment occurs when an option holder exercises his option by notifying his broker, who then notifies the
1013:
861:
846:
811:
754:
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925:
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418:
739:
263:
1028:
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511:
385:
345:
312:
53:
744:
1033:
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567:
135:
would probably cause the price of the underlying to fall further) between now and the expiry date.
1084:
1069:
1038:
1023:
990:
856:
647:
612:
375:
303:
240:
233:
36:, the owner of the option sells the underlying to the option seller, again at the strike price.
1089:
1079:
1018:
1005:
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866:
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448:
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970:
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120:
17:
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183:
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529:
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955:
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104:
29:
77:
The option contract specifies the manner in which the contract is to be settled.
836:
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675:
671:
622:
413:
408:
25:
1160:
796:
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557:
443:
33:
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124:
99:
The following guidelines determine whether and when to exercise an option:
1175:
920:
642:
539:
360:
52:– European-style option contracts may only be exercised at the option's
272:
276:
208:"Options Settlement – How Options Contracts Are Settled"
264:"OCC Infomemo #30048: Underlying Prices for Expiration"
119:
should only be exercised early on the day before an
1128:
1047:
1004:
900:
777:
685:
548:
457:
394:
328:
319:
235:
184:"Characteristics and Risks of Standardized Options"
232:
288:
8:
103:An option should only be exercised if it is
325:
295:
281:
273:
1120:Power reverse dual-currency note (PRDC)
1060:Constant proportion portfolio insurance
175:
7:
1055:Collateralized debt obligation (CDO)
32:from the option seller, while for a
114:For an American-style call option,
130:For an American-style put option,
14:
1174:
882:Year-on-year inflation-indexed
189:. Options Clearing Corporation
1:
892:Zero-coupon inflation-indexed
155:Options Clearing Corporation
1095:Foreign exchange derivative
487:Callable bull/bear contract
1218:
20:contract has the right to
1169:
996:Stock market index future
310:
239:. Prentice Hall. p.
123:, and then only for deep
1115:Mortgage-backed security
1110:Interest rate derivative
1085:Equity-linked note (ELN)
1070:Credit-linked note (CLN)
1065:Contract for difference
366:Risk-free interest rate
149:Assignment and clearing
140:Early exercise strategy
847:Forward Rate Agreement
212:www.optionstrading.org
1075:Credit default option
419:Employee stock option
266:Accessed Jan 21, 2012
231:John C. Hull (2002).
161:Exercise by exception
1029:Inflation derivative
1014:Commodity derivative
986:Single-stock futures
976:Normal backwardation
966:Interest rate future
807:Conditional variance
313:Derivative (finance)
1181:Business portal
1034:Property derivative
82:Physical settlement
1039:Weather derivative
1024:Freight derivative
1006:Exotic derivatives
926:Commodities future
613:Intermarket spread
376:Synthetic position
304:Derivatives market
1202:Options (finance)
1189:
1188:
1090:Equity derivative
1080:Credit derivative
1048:Other derivatives
1019:Energy derivative
981:Perpetual futures
862:Overnight indexed
812:Constant maturity
773:
772:
720:Finite difference
653:Protective option
1209:
1179:
1178:
951:Forwards pricing
725:Garman–Kohlhagen
326:
297:
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267:
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255:
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228:
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121:ex-dividend date
16:The owner of an
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1206:
1192:
1191:
1190:
1185:
1173:
1165:
1151:Great Recession
1146:Government debt
1124:
1100:Fund derivative
1043:
1000:
961:Futures pricing
936:Dividend future
931:Currency future
914:
896:
769:
745:Put–call parity
681:
668:Vertical spread
603:Diagonal spread
573:Calendar spread
544:
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88:Cash settlement
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42:
12:
11:
5:
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1187:
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1170:
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1156:Municipal debt
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1148:
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1141:Corporate debt
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983:
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968:
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948:
943:
941:Forward market
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869:
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849:
844:
839:
834:
829:
824:
822:Credit default
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799:
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665:
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635:
630:
625:
620:
618:Iron butterfly
615:
610:
605:
600:
595:
590:
588:Covered option
585:
580:
575:
570:
565:
560:
554:
552:
546:
545:
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542:
537:
532:
527:
526:Mountain range
524:
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469:
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461:
455:
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174:
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162:
159:
150:
147:
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138:
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132:early exercise
128:
116:early exercise
112:
109:
96:
95:Considerations
93:
92:
91:
85:
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63:
57:
41:
38:
13:
10:
9:
6:
4:
3:
2:
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1199:
1197:
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1162:
1159:
1157:
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1152:
1149:
1147:
1144:
1142:
1139:
1137:
1136:Consumer debt
1134:
1133:
1131:
1129:Market issues
1127:
1121:
1118:
1116:
1113:
1111:
1108:
1106:
1105:Fund of funds
1103:
1101:
1098:
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987:
984:
982:
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977:
974:
972:
969:
967:
964:
962:
959:
957:
954:
952:
949:
947:
946:Forward price
944:
942:
939:
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934:
932:
929:
927:
924:
922:
919:
918:
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902:
899:
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890:
888:
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883:
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873:
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868:
865:
863:
860:
858:
857:Interest rate
855:
853:
850:
848:
845:
843:
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838:
835:
833:
830:
828:
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823:
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815:
813:
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790:
788:
785:
784:
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776:
766:
763:
761:
758:
756:
753:
751:
750:MC Simulation
748:
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743:
741:
738:
736:
733:
731:
728:
726:
723:
721:
718:
715:
711:
710:Black–Scholes
708:
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703:
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698:
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693:
692:
690:
688:
684:
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669:
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664:
663:Risk reversal
661:
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611:
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606:
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593:Credit spread
591:
589:
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581:
579:
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574:
571:
569:
566:
564:
561:
559:
556:
555:
553:
551:
547:
541:
538:
536:
533:
531:
528:
525:
523:
520:
518:
517:Interest rate
515:
513:
512:Forward start
510:
508:
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503:
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475:
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470:
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445:
442:
440:
439:Option styles
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435:
432:
430:
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422:
420:
417:
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410:
407:
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402:
401:
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367:
364:
362:
359:
357:
356:Open interest
354:
352:
349:
347:
344:
342:
339:
337:
336:Delta neutral
334:
333:
331:
327:
324:
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314:
309:
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250:0-13-009056-5
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185:
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100:
94:
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72:
67:
64:
61:
58:
55:
51:
48:
47:
46:
39:
37:
35:
31:
27:
23:
19:
956:Forward rate
867:Total return
755:Real options
658:Ratio spread
638:Naked option
598:Debit spread
429:Fixed income
371:Strike price
340:
259:
234:
226:
215:. Retrieved
211:
202:
191:. Retrieved
178:
164:
152:
143:
131:
125:in-the-money
115:
105:in the money
98:
87:
81:
76:
65:
59:
49:
43:
30:strike price
21:
15:
887:Zero Coupon
817:Correlation
765:Vanna–Volga
623:Iron condor
409:Bond option
26:call option
1161:Tax policy
877:Volatility
787:Amortising
628:Jelly roll
563:Box spread
558:Backspread
550:Strategies
386:Volatility
381:the Greeks
346:Expiration
217:2017-01-05
193:2007-06-21
170:References
73:Settlement
54:expiration
34:put option
852:Inflation
802:Commodity
760:Trinomial
695:Bachelier
687:Valuation
568:Butterfly
502:Commodore
351:Moneyness
1196:Category
991:Slippage
921:Contango
905:Forwards
872:Variance
832:Dividend
827:Currency
740:Margrabe
735:Lattices
714:equation
700:Binomial
648:Strangle
643:Straddle
540:Swaption
522:Lookback
507:Compound
449:Warrants
424:European
404:American
396:Vanillas
361:Pin risk
341:Exercise
127:options.
66:Bermudan
60:American
50:European
22:exercise
910:Futures
530:Rainbow
497:Cliquet
492:Chooser
472:Barrier
459:Exotics
321:Options
971:Margin
837:Equity
730:Heston
633:Ladder
583:Condor
578:Collar
535:Spread
482:Binary
477:Basket
247:
40:Styles
18:option
842:Forex
797:Basis
792:Asset
779:Swaps
705:Black
608:Fence
467:Asian
329:Terms
187:(PDF)
108:well.
676:Bull
672:Bear
414:Call
245:ISBN
444:Put
241:744
1198::
674:,
434:FX
243:.
210:.
716:)
712:(
678:)
670:(
296:e
289:t
282:v
253:.
220:.
196:.
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