Stocks & Commodities V. 25:4 (57): Explore Your Options by Tom Gentile
Got a question about options? Tom Gentile is the chief options strategist at Optionetics (www.optionetics.com), an education and publishing firm dedicated to teaching investors how to minimize their risk while maximizing profits using options. To submit a question, post it to our website at http://Message-Boards.Traders.com. Answers will be posted there, and selected questions will appear in a future issue of S&C.
EXERCISE AND ASSIGNMENT
Q: I hear the terms “exercise” and “assignment” used interchangeably, but don’t they have different meanings?
A: Exercise and assignment are two sides of the same coin. The terms are used when an option owner decides to take advantage of the terms afforded by the options contract. For a stock option, exercise and assignment involves the transfer of shares from one party to another. For futures options, it involves the transfer of a futures contract. For index options, cash changes hands. The difference between exercise and
assignment is that the option owner is the one exercising their right to buy or sell the underlying asset. The option seller is the one being assigned. For example, I own January 50 calls on XYZ Corp. I can exercise my contract and buy, or call, XYZ shares from the person short the XYZ January calls. If so, the option seller has been assigned and must deliver XYZ at $50 a share.