Options Exercise, Assignment, and Settlement: Rapid Fire

What this video covers

• Why exercising an option on a future produces a futures position at the strike, not physical commodities or a cash payout
• The exact long and short position pairs after exercise: call holder long, writer short; put holder short, writer long
• How the clearinghouse assigns writers, usually at random but sometimes pro rata for certain energy and metals contracts, with neither party choosing
• Why a buyer posts no margin before exercise but must post full futures margin immediately after, while writers post performance-bond margin beforehand
• The difference between the last trading day and the expiration date, and why offsetting disappears once the last trading day passes
• When American-style options may be exercised (anytime up to expiration) versus European-style options (only at expiration)
• Why in-the-money options are typically auto-exercised and out-of-the-money options expire worthless, with contrary instructions available on some contracts