Exercise, Assignment and Expiration
27 words you meet in options, each one explained plainly.
After Hours Exercise Risk
After hours exercise risk refers to the possibility that information or price movements after the regular trading session can affect exercise decis...
American Style Option
An American style option generally allows the holder to exercise the contract at any permitted time up to and including expiration, subject to the...
Assignment Risk
Assignment risk is the risk that a short option position is assigned, requiring the seller to fulfil the option's contractual obligation.
Automatic Exercise
Automatic exercise is a process under which qualifying options may be exercised at expiration without the holder manually submitting an exercise in...
Cash Settlement
Cash settlement occurs when an option is settled through a cash payment based on the contract's settlement value rather than through delivery of th...
Closing an Option
Closing an option means entering an offsetting transaction that reduces or eliminates an existing options position. For a long option: Sell to Clos...
Dividend Risk
Dividend risk refers to the assignment and exercise considerations created by an upcoming dividend, particularly for certain short call positions.
Do Not Exercise
Do Not Exercise refers to an instruction used in applicable markets or broker systems to prevent an option from being exercised when it might other...
Early Assignment
Early assignment occurs when the seller of an option is assigned before expiration following early exercise by a holder under a contract that permi...
Early Exercise
Early exercise occurs when an option is exercised before expiration. It is possible only when the contract's exercise style and applicable rules pe...
European Style Option
A European style option permits exercise only at expiration according to the contract's terms.
Exercise by Exception
Exercise by exception is a clearing process under which options meeting specified in the money criteria at expiration may be automatically exercise...
Exercise Cutoff
An exercise cutoff is the applicable deadline for submitting exercise instructions.
Exercise Notice
An exercise notice is the instruction or notification used to exercise an option according to the applicable broker, clearing and contract procedures.
Exercise Price
Exercise price is another name for the strike price specified by an option contract.
Exercise Style
Exercise style defines when an option holder is permitted to exercise the contract. Two major styles are: American style and European style.
Expiration Risk
Expiration risk refers to risks that arise as an option approaches expiration, including rapidly changing exposure, uncertain exercise outcomes and...
Expire In the Money
An option expires in the money when it has intrinsic value according to the relevant settlement or expiration reference.
Expire Out of the Money
An option expires out of the money when it has no intrinsic value according to the relevant expiration or settlement reference.
Expire Worthless
An option expires worthless when it reaches expiration without intrinsic value and therefore has no expiration payoff.
LEAPS
LEAPS are long dated listed options with expirations substantially further into the future than typical short dated options.
Monthly Options
Monthly options are contracts belonging to a regular monthly expiration schedule.
Option Settlement
Option settlement is the process through which the obligations created by exercise and assignment are fulfilled. Settlement may involve: delivery o...
Physical Settlement
Physical settlement occurs when exercise and assignment result in delivery or receipt of the underlying asset according to the option contract. Exa...
Pin Risk
Pin risk arises when the underlying asset trades very close to an option's strike around expiration, creating uncertainty about whether the option...
Settlement Price
Settlement price is a price or calculated reference used under a contract's rules to determine settlement.
Weekly Options
Weekly options are options with expirations scheduled on a weekly basis for products where such contracts are listed.