Options Expiration, Exercise, and Assignment FAQ
People often have questions on what to do about Options Expiration and how to deal with Option exercise or Option Assignment. We try to answer those question for you right here.
Q: When do options expire?
A: Expiration day for equity and index options is the Saturday immediately following the third Friday of the options expiration month.
Q: What is the difference between American-style exercise and European-style exercise?
A: American-style exercise means that you can exercise your option contract any day that the market is open before the expiration date. Currently, all exchange-traded equity options are American-style.
European-style exercise means that the only time you can exercise your option contract is during a specific period of time just prior to its expiration. Most, but not all, index options are European-style, and generally may be exercised only on the last business day before (usually Friday) expiration. Remember, even though there is only one day in which you can exercise your contract, you can always close out your option position in the secondary market any day prior to expiration
Q: When is the last day to an equity option?
A: The last day to trade equity options is the Friday before options expiration, or the third Friday of the month, unless that day is an exchange holiday in which case the last trading day will be the previous day, or Thursday.
Q: When is the last day to exercise an equity option?
A: The last day to exercise an American-style option is usually the third Friday of the month in which the contract expires (expiration Friday).
Q: When is the last day to trade an index option?
This depends on whether the option is American-style or European-style:
A: For American-style index option contracts the last trading day is generally the third Friday of the options expiration month, unless that day is an exchange holiday in which case the last trading day will be the previous day, or Thursday.
For European-style index option contracts the last trading day will be the business day (generally a Thursday) preceding the day on which the exercise settlement value is calculated (generally the third Friday of the month unless that day is a holiday).
Q: When is the last day to exercise an index option?
An American-style index option may be exercised at any time prior to its expiration, or at any time up to and including the Third Friday of the expiration month.
Thursday before Expiration is typically the last trading day for European style index options, and is the only day you can exercise those options.
Q: How can I tell when I will be assigned on my option contract?
A: There are some generalizations which might help you understand when you might be more likely to be assigned on a short-option position.
- Only about 17% of options end up being exercised; the percentage hasn't varied much over the years. That does not mean that you can only be assigned on 17% of your short option, however. It means that, in general, option exercises are not that common. - The majority of option exercises (and the corresponding assignments) take place as the option gets closer to expiration. It usually doesn't make sense to exercise an option, which has any time premium over intrinsic value. For most options, that doesn't occur until close to expiration.
- In general terms, a put which goes in-the-money is more likely to be exercised than a call which goes in-the-money. Why? Think about the result of an exercise. An investor who exercises a put uses it to sell shares and receive cash. A person exercising a call option uses it to buy shares and must pay cash. People are more likely to exercise options if it means they can receive cash sooner. The opposite is true for calls, where exercise means you have to pay cash sooner.
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