Options Trading Options Exercise and Assignment

Question 1

When an option holder exercises their right, what does the option writer (seller) experience?

Accepted Answer

They are assigned and must fulfill the contract obligation

Answer

They receive an additional premium payment

Answer

Their position automatically expires worthless

Answer

They receive the underlying shares at market price

Question 2

Which type of option can be exercised at any time before or on the expiration date?

Accepted Answer

American-style options

Answer

European-style options

Answer

Bermudan-style options

Answer

Asian-style options

Question 3

What happens to the premium collected by a call option seller if the buyer exercises the option?

Accepted Answer

The premium is kept by the seller regardless of exercise

Answer

The premium is returned to the buyer upon exercise

Answer

The seller must pay double the premium as a penalty

Answer

The premium is applied as a credit toward the strike price

Question 4

If you hold a covered call position and the short call is assigned, what happens to your shares?

Accepted Answer

Your shares are called away and sold at the strike price

Answer

You receive additional shares at the strike price

Answer

You must buy more shares at the current market price

Answer

The position automatically rolls to the next expiration cycle

Question 5

On what date(s) can a European-style option be exercised?

Accepted Answer

Only on the expiration date itself

Answer

Any trading day during the option's life

Answer

Only during the last week before expiration

Answer

Only during the first month after purchase

Question 6

How many shares of the underlying stock does one standard equity options contract represent?

Accepted Answer

100 shares

Answer

10 shares

Answer

50 shares

Answer

1,000 shares

Question 7

When a put option holder exercises their right, what obligation does the put writer face?

Accepted Answer

Buy 100 shares from the put holder at the strike price

Answer

Sell 100 shares at the current market price

Answer

Deliver 100 shares to the put holder at the strike price

Answer

Pay cash equal to the option's intrinsic value