Listed options settlement
When the holder exercises, or an option is automatically exercised, it's the clearing organization that effectively resolves the contracts with the holder.
The clearing house then randomly selects a writer of those contracts, and issues them with an assignment which obligates them to fulfill the terms of the contracts.
The end result is basically the same; the holder either buys or sells the underlying security depending on whether it's call or put options , and the writer fulfills the other end of the transaction.
There's just another party in the middle that basically makes sure the whole process goes smoothly. Whether you are exercising options you own or receiving an assignment on contracts you have written, that part of the process goes relatively unseen and is all handled by your broker.
There are two methods by which options can be settled when exercised; physical settlement and cash settlement. All contracts will state which form of settlement applies. Below we explain both of these settlement types and how they work. Physical settlement is the most commonly used form of settlement. Physically settled options are those that involve the actual delivery of the underlying security they are based on. The holder of physically settled call options would therefore buy the underlying security if they were exercised, whereas the holder of physically settled put options would sell the underlying security.
Physically settled options tend to be American style, and most stock options are physically settled. It isn't always immediately obviously when looking at options as they are listed whether they are physically settled or cash settled, so if this aspect is important to you it's well worth checking to be absolutely sure.
OCC's goal is to service clearing members and the exchanges through an operating plan that emphasizes timely, reliable, and cost-efficient clearing operations. OCC also serves other markets, including those trading commodity futures, commodity options, and security futures. Key to a clearing organization is margin requirement, which manages its credit risk risk of member default. Since , the contributions that OIC has made to the investing and brokerage communities have been significant to the growth of the options industry.
Today, retail investors, financial advisors, and institutional investors continue to show interest for information and education on exchange listed options. OIC delivers its education through a comprehensive website , featuring online courses, podcasts, webcasts and videos. OIC also offers live seminars, mobile tools and one on one investor services support from options professionals. From Wikipedia, the free encyclopedia. Not to be confused with Office of the Comptroller of the Currency.
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