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

When an option holder exercises, the writer is assigned and must fulfill their contractual obligation — delivering shares for calls or buying shares for puts.

Question 2

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

Accepted Answer

American-style options

Answer

American-style options can be exercised at any point before or on the expiration date, unlike European-style options which are restricted to expiration day only.

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 collected by the option seller is always theirs to keep, regardless of whether the option is exercised, expires worthless, or is closed early.

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

When a covered call is assigned, the seller must deliver 100 shares at the strike price — the shares are effectively sold (called away) at that price.

Question 5

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

Accepted Answer

Only on the expiration date itself

Answer

European-style options can only be exercised on the expiration date, giving the holder significantly less flexibility compared to American-style options.

Options Trading Practice Test

Options Trading Practice Test

Options Trading Options Exercise and Assignment