December Webinar Key Takeaways: Exercise & Assignment and Corporate Actions in Options Trading

In December, OIC instructor Mark Benzaquen led two webinars on fundamental concepts in options trading: Understanding Options Exercise & Assignment: Features and Critical Aspects and Corporate Actions and Options: Navigating Potential Contract Adjustments. Both sessions provided practical knowledge essential for managing risk, understanding contractual obligations, and navigating complex market events that can significantly affect option positions. 
 

What We Covered:

Exercise and Assignment: Understanding Rights and Obligations 

• Exercise: The process by which an options buyer enacts their contractual rights. 
• Assignment: The seller's fulfillment of their contractual obligations. 
• Style Differences: American-style options can be exercised anytime on or before expiration, while European-style options can only be exercised at expiration. 

After-Hours Movements and Proactive Management  

• After-hours market activity can turn out-of-the-money options in-the-money (or vice versa), creating unexpected exposure. Understanding brokerage policies on manual exercise procedures and cut-off times is essential.  

Corporate Actions Require Case-by-Case Adjustments 

• Corporate events — mergers, stock splits, dividends, and bankruptcies — can alter option contract terms including strike prices, underlying assets, quantities, and expiration dates. These adjustments follow OCC By-Laws and SEC rules and are handled on a case-by-case basis.  

Key Considerations Include: 

• Non-ordinary dividends typically are adjusted by either lowering strike prices by the dividend amount or by including the dividend amount to the deliverable 
• Bankruptcy can render call options worthless and put options at full value 
• Trading halts don't eliminate rights/obligations but may impact position management 

Keep Learning:     

Key Moments from Understanding Options Exercise & Assignment: Features and Critical Aspects
Key Moments from Corporate Actions and Options: Navigating Potential Contract Adjustments 
 

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