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This week's

Options Forum takes a look at some questions regarding index options. To get the best answers, we went to the folks at the

Options Clearing Corporation


And remember, we're always open to reader questions, so drop a note to

Options Forum and include your full name.

Settling Up

Let's say I am short SPX calls (a European-style option), which are in the money. Since SPX options now expire on the third Thursday, am I correct in assuming that only on their last day, the expiration Thursday, can I be assigned -- required to deliver the cash value of the options at the time of assignment?

Yes, you are required to deliver the difference between your

strike price and the settlement value. The exercise-settlement amount is equal to the difference between the exercise-settlement value and the exercise price of the option, multiplied by $100.

If an investor owned an 1175 call and the settlement value was calculated to be 1178.60, the settlement-value amount credited to the investor would be $360. FYI: the last day to trade an expiring SPX contract is usually a Thursday, settlement values are typically determined on Friday at the opening value of the index, and expiring-month SPX options will expire on the Saturday following the third Friday of the month.

Exercise/assignment will result in receipt or delivery of cash on the business day following expiration (usually a Monday).

Remember, while an American-style option can be exercised at any point, a European-style option can be exercised only on the option's expiration day.

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Almost a Sure Thing

An additional question: Just how likely is it that someone short in-the-money SPX options will be assigned, rather than having the options expire in the money, and being therefore obliged to cover the expiration value? This question arises if I sell a straddle well before expiration; my presumed profit is maximized by letting both the call and the put sides go to expiration. One side will inevitably be in the money, however, and runs the risk of assignment, unbalancing the straddle. Will a broker take an order to automatically buy in the other side of a straddle if one side is assigned? And how common is SPX assignment? What percentage of in-the-money option positions are assigned on the last day, and what percentage are simply held through expiration for the cash value?

The likelihood of exercise/assignment for an in-the-money SPX option is quite high, almost 100%. Certain brokerages that are clearing members of the Options Clearing Corp. can have options contracts that are at or above a specific in-the-money threshold automatically exercised, unless the brokerage instructs OCC to the contrary. You should find out more information about this from your specific broker.

As mentioned in the answer to the first question, exercises are done after the last trading day, so a request to "buy in" the other side of the straddle could not be done. (A straddle is a trading strategy involving puts and calls on a one-to-one basis that have the same strike price, expiration and underlying stock or index. A long straddle is when the position is owned; a short straddle is when the call and put are written.)

3Com Distribution of Palm Stock

The Options Forum has received a number of questions regarding



distribution of stock in




A great resource for those interested in how the distribution affects the options is located on the

Chicago Board Options Exchange

Web site .