Know who can act
The option holder may exercise under contract and broker rules. The short side can be assigned according to clearing and broker allocation processes. Automatic exercise thresholds and contrary instructions can vary.
Record the last trading day, expiration date, exercise cutoff, settlement method, and whether the option is American or European style.
- Contract style
- Broker cutoff
- Settlement type
- Account buying power
Plan for the resulting position
Exercise or assignment can create shares, cash obligations, short stock, or a cash settlement. Market movement after the option stops trading can affect the resulting exposure.
Do not assume an in-the-money option will always be handled as expected. Review broker documentation and account status before the deadline.
Write the exact resulting account position for exercise and assignment, including shares or cash, settlement date, and funding requirement.