Options Trading Options Exercise and Assignment 2

Question 1

Which of the following is the most common reason a call option holder might exercise early?

Accepted Answer

To capture an upcoming dividend on the underlying stock

Answer

To avoid time value decay on the premium paid

Answer

To lock in remaining time value before expiration

Answer

To reduce the total cost basis of the position

Question 2

What does 'pin risk' refer to in options trading near expiration?

Accepted Answer

Uncertainty when a stock closes exactly at or near the strike price at expiration

Answer

The risk that the underlying stock gaps far away from the strike

Answer

The risk of being assigned on multiple contracts simultaneously

Answer

A type of illiquidity that prevents closing an options position

Question 3

Which of the following statements about assignment is most accurate?

Accepted Answer

Only in-the-money options are typically exercised and result in assignment

Answer

Assignments can occur on any option regardless of moneyness

Answer

Option sellers can always predict exactly when they will be assigned

Answer

Assignment only occurs at expiration, never before

Question 4

What is the OCC's typical deadline for option holders to submit exercise notices on expiration day?

Accepted Answer

5:30 PM ET after the market closes

Answer

9:30 AM ET when the market opens

Answer

4:00 PM ET at the regular market close

Answer

Midnight at the end of expiration day

Question 5

Why is the ex-dividend date important to options traders managing short call positions?

Accepted Answer

It is the date after which buyers no longer receive the declared dividend, making early call exercise more likely

Answer

It is the date when all short options are automatically assigned

Answer

It is the date when implied volatility typically spikes for the underlying

Answer

It is the settlement date for all options that were in-the-money

Question 6

If you are short a put and it is assigned, what position will you hold in your account?

Accepted Answer

Long 100 shares of the underlying at the strike price

Answer

Short 100 shares of the underlying stock

Answer

A long call option at the same strike price

Answer

No position — the assignment cancels the put trade

Question 7

Which of the following best describes the OCC's 'automatic exercise' rule at expiration?

Accepted Answer

The OCC automatically exercises all options that are in-the-money by at least $0.01

Answer

All options are automatically exercised regardless of whether they are in or out of the money

Answer

Out-of-the-money options are automatically rolled to the next monthly cycle

Answer

Brokers automatically close all open options positions one day before expiration