People who buy options have a Right, and that is the right to Exercise.
For a Call exercise, Call holders may buy stock at the strike price (from the Call seller).
For a Put exercise, Put holders may sell stock at the strike price (to the Put seller).
Neither Call holders nor Put holders are obligated to buy or sell; they simply have the rights to do so, and may choose to Exercise or not to Exercise based upon their own logic.
For a Call exercise, Call holders may buy stock at the strike price (from the Call seller).
For a Put exercise, Put holders may sell stock at the strike price (to the Put seller).
Neither Call holders nor Put holders are obligated to buy or sell; they simply have the rights to do so, and may choose to Exercise or not to Exercise based upon their own logic.
Assignment of Options
When an option holder chooses to exercise an option, a process begins to find a writer who is short the same kind of option (i.e., class, strike price and option type). Once found, that writer may be Assigned. This means that when buyers exercise, sellers may be chosen to make good on their obligations.
When an option holder chooses to exercise an option, a process begins to find a writer who is short the same kind of option (i.e., class, strike price and option type). Once found, that writer may be Assigned. This means that when buyers exercise, sellers may be chosen to make good on their obligations.
For a Call assignment, Call writers are required to sell stock at the strike price to the Call holder.
For a Put assignment, Put writers are required to buy stock at the strike price from the Put holder.
For a Put assignment, Put writers are required to buy stock at the strike price from the Put holder.
Some Basic Terms Explained
Strike price
The predetermined price upon which the buyer and the seller of an option have agreed is the strike price, also called the exercise price or the striking price. Each option on a underlying instrument shall have multiple strike prices.
The predetermined price upon which the buyer and the seller of an option have agreed is the strike price, also called the exercise price or the striking price. Each option on a underlying instrument shall have multiple strike prices.
In the money:
Call option - underlying instrument price is higher than the strike price.
Put option - underlying instrument price is lower than the strike price.
Call option - underlying instrument price is higher than the strike price.
Put option - underlying instrument price is lower than the strike price.
Out of the money:
Call option - underlying instrument price is lower than the strike price.
Put option - underlying instrument price is higher than the strike price.
Call option - underlying instrument price is lower than the strike price.
Put option - underlying instrument price is higher than the strike price.
At the money:
The underlying price is equivalent to the strike price.
Expiration day Options have finite lives. The expiration day of the option is the last day that the option owner can exercise the option. American style options can be exercised any time, before the expiration date at the owner's discretion. Thus, the expiration and exercise days can be different. European style options can only be exercised on the expiration day.
The underlying price is equivalent to the strike price.
Expiration day Options have finite lives. The expiration day of the option is the last day that the option owner can exercise the option. American style options can be exercised any time, before the expiration date at the owner's discretion. Thus, the expiration and exercise days can be different. European style options can only be exercised on the expiration day.
