Process of Assignment

What this video covers

• The fundamental power dynamic: exercise is the holder's voluntary act, while assignment is imposed on the writer by the clearinghouse
• The two clearinghouse allocation methods (random assignment and pro rata), and which product families use the deterministic pro rata approach
• Why the exercising buyer never selects the assigned writer, and why the writer cannot choose or avoid assignment under either method
• The mirror-image futures positions created by call exercise (holder long, writer short) and put exercise (holder short, writer long)
• Why exercising an in the money (ITM) option produces a futures position, not a cash payout or physical commodity delivery
• How the new futures position is marked to market from the strike price, generating variation margin rather than a lump-sum settlement
• How to spot and eliminate answer choices that skip the futures position step, or that give the holder and writer the same directional position