equity option assignment

For the Public

FINRA Data provides non-commercial use of data, specifically the ability to save data views and create and manage a Bond Watchlist.

For Industry Professionals

Registered representatives can fulfill Continuing Education requirements, view their industry CRD record and perform other compliance tasks.

For Member Firms

FINRA GATEWAY

Firm compliance professionals can access filings and requests, run reports and submit support tickets.

For Case Participants

Arbitration and mediation case participants and FINRA neutrals can view case information and submit documents through this Dispute Resolution Portal.

Need Help? | Check System Status

Log In to other FINRA systems

• An option is a financial instrument known as a derivative that conveys to the purchaser (the option holder) the right, but not the obligation, to buy or sell a set quantity or dollar value of a particular asset at a fixed price by a set date.
• The seller (or writer) of options accepts the obligation to buy or sell should the purchaser exercise their right.
• U.S. investors can trade options on a wide range of financial products—from individual stocks or stock exchange-traded funds (ETFs) to indexes, foreign currencies and more.
• Calls convey to the purchaser the right, but not the obligation, to buy shares. They convey to the seller the obligation to sell shares if the contract is assigned.
• Puts convey to the purchaser the right, but not the obligation, to sell shares. They convey to the seller the obligation to buy shares if the contract is assigned.
• Options offer leverage, meaning the ability to magnify the value or purchasing power of the premium you pay—but leverage can come with the risk of significant losses.
• Trading options requires specific approval from an investor’s brokerage firm.
• Before trading options, read the Characteristics and Risks of Standardized Options disclosure provided by your firm.

Options are contracts that offer investors the potential to make money on changes in the value of, say, a stock without actually owning the stock. Of course, one can also lose money trading options. Options are considered derivatives because they derive their value from the price of another asset, called the underlying asset. In the case of options, the underlying asset can be single stocks, exchange-traded funds (ETFs), the value of an index, debt securities (like bonds or index-linked notes) or foreign currencies.

Options give the purchaser (also called the option holder) the right, but not the obligation, to buy or sell the underlying asset at a fixed price, known as the strike price, within a specific period of time. The seller (also known as the writer) of options accepts the obligation to buy or sell the underlying asset if the contract is assigned , meaning the seller’s brokerage firm requires the seller to meet the obligations spelled out in the contract.

Options come in two types: call options and put options. Call options give the holder the right to buy the underlying asset, or the value of the underlying asset, in the case of index options. The seller of a call option accepts, in exchange for the premium the holder pays, an obligation to sell the stock (or the value of the underlying asset) at the agreed upon strike price if assigned.

With put options, the holder obtains the right to sell a stock, and the seller takes on the obligation to buy the stock. If the contract is assigned, the seller of a put option must buy the underlying asset at the strike price.

Options are complex instruments that can play a number of different roles within an investment portfolio, from helping investors manage risk to increasing income from current stock holdings. Buying and selling options can be risky, and trading the product requires specific approval from an investor’s brokerage firm.

Bottom Line

Although options might be appropriate for some investors within a diversified portfolio , options are complex financial instruments that come with different risks depending on how you trade them. For more information about the inherent risks and characteristics of the options market, check out the Characteristics and Risks of Standardized Options . The Options Industry Council also has a lot of great resources to get you started, including a number of free webinars on a wide range of topics.

Beyond puts and calls, options contracts vary in their underlying assets and longevity.

Options by Underlying Asset

Although the types of assets on which U.S. investors can purchase options include equities, indexes, debt securities and foreign currencies, the focus here is mainly on equity and index options.

Equity Options: Equity options have shares of stocks and exchange-traded funds (ETFs) as their underlying asset. If you exercise an equity option, you buy or sell shares of that underlying stock or ETF depending on whether you purchased a call or a put. Equity options trade “American-style,” which means you (as the holder of the contract) can exercise it at any time between the date of purchase and the expiration date. It’s important to note that different brokerage firms may have different exercise cut-off times. Consult with your brokerage firm or investment professional to ensure that you don’t miss that deadline.

Index Options: Index options have the value of an underlying index, such as the S&P 500 or the Chicago Board Options Exchange’s Volatility Index (VIX), as the underlying asset. Index options are cash-settled, which means exercising an index option results in a cash payment instead of the exchange of a security, such as an index future. Index options generally trade “European-style,” which means the settlement process is done at expiration only, which can be based on the value of the index at market open or market close.

The differences between equity options and index options are most important to consider and understand when it comes to indexes for which there are also ETFs. For example, while SPDR S&P 500 options, or SPY options, which are options tied to an ETF that tracks the S&P 500, are American-style options that settle in shares of SPY, S&P 500 Index options, or SPX options, which are tied to S&P 500 futures contracts, are European-style options that settle for cash.

Options by Expiration

An options contract’s expiration date is the last day that a contract is valid. Before this date, the holder of an options contract can choose to exercise the option (in the case of American-style contracts), trade the contract to close the position or let the contract expire worthless.

Generally, standardized equity options that are in-the-money—meaning the market price of the underlying security is above the strike price of a call option or below the strike price of a put—will automatically be exercised at expiration. For call options, that means the cost associated with doing so (in other words, the money to buy 100 shares of the underlying stock) will be due at that time.

Below is a list of the most common types of options expirations.

Daily Options:  While a similar strategy could be employed with other duration types, new zero-day-to-expiration (0DTE) options are same-day contracts that expire within 24 hours of purchase.  

Monthly Options: Options are traditionally structured on a monthly basis, with contracts for each month of the year expiring on the third Friday of every month.

Weekly Options: Weekly options are short-term contracts that are usually listed with at least one week until expiration. Like monthly contracts, they expire on Fridays. Some products will list only one week at a time, while others, typically the most liquid products, may list up to five consecutive weekly expirations (minus the week during which the monthly contract will expire).

Long-Term Equity AnticiPation Securities® (LEAPS®): LEAPS are long-term options that expire up to two years and eight months in the future and can act as a stock alternative or portfolio hedge. LEAPS trade just like other listed options but may have limited availability and have unique risks when it comes to their pricing and time premium erosion .

Other Options

Binary Options: Unlike other types of options contracts, binary options are all-or-nothing propositions. Trading binary options can be an extremely risky proposition. Trading binary options is made even riskier by fraudulent schemes, many of which originate outside the U.S. 

Before you can trade options, your brokerage firm must approve your account for a specific level of options trading since some strategies involve substantial risk. In order to be approved for trading, you’ll need to fill out your firm’s options agreement . This policy is designed to protect investors from trading beyond their abilities or financial means and to protect brokerage firms against potential defaults on margin accounts. Ask your firm to learn more about their particular levels of approval and what it takes to be approved for different levels.

When approved for options trading, there are a number of things of which you need to be aware. Options have a strike price, the specific price at which the contract may be exercised, and an expiration date, the date by which the purchaser (holder) of the contract must exercise the contract should they wish to do so. A standard-size options contract is equal to 100 shares of the underlying security.

The price at which an option is purchased is called the premium. A number of factors impact an option’s premium, and an option’s premium can change often. Learn more about what goes into options pricing.

All options, both puts and calls, can be bought and sold. To initiate an options trade, you must either enter an opening purchase or an opening sale. In an opening purchase trade, an investor opens a position by buying a call or a put. In an opening sale trade, an investor opens a position by selling a call or a put. To get out of a trade, an investor must do the reverse. An investor who previously purchased an option can exit the trade with a closing sale of the same contract series. An investor who previously sold an option can exit the trade with a closing purchase.

Options are securities that can go up and down based on a variety of factors. As a derivative product, one of the main drivers of an option’s value is the underlying security or index. The purchaser of a contract can make money if the value of the underlying security or index rises above (in the case of a call) or falls below (in the case of a put) the strike price of their options contract by more than the premium paid. The purchaser will only realize their gains if they sell their option position or the position resulting from the exercise of their rights under the contract.

The seller of an option will only realize their gains if they buy back the contract for less than the sale price or if the contract expires worthless. A contract expires worthless when the price of the underlying security or index remains below (in the case of a call) or above (in the case of a put) the strike price. Additionally, the seller may also realize gains if the seller of the contract is able to close the position resulting from the assignment at a favorable price.

The prices of stocks and indexes change all the time, as do the value of options contracts. Options investors can have a paper profit one day and a paper loss the next. Any potential profits are not guaranteed until a closing transaction is completed or the contract reaches expiration.

For the purchaser of an option, the premium paid is your maximum loss. For the seller of an option, the premium you receive at the time of the sale is your maximum profit. If the seller of a contract is assigned, they may lose money. In the case of an uncovered, or naked, call, where an investor sells a call option without owning the underlying stock, the maximum loss is theoretically unlimited. That’s because while purchasers of options have the right, but not the obligation, to exercise the options contract that they purchased, investors that sell—or write—contracts, have the obligation to buy or sell shares at the strike price if assigned. Learn more about options assignment.

Options investors can bound their potential losses (and potential gains) by executing strategies with multiple “legs,” or with multiple contracts on the same security, but doing so is complicated and comes with its own risks. One risk includes one leg of the position being closed automatically by the investor’s brokerage firm due to certain risk factors such as insufficient funds. This can happen if an investor’s account lacks the funds to follow through with a transaction should they be assigned and required to purchase shares. Not all investors will be approved for such strategies.

Trading options can come with significant risks. These risks vary greatly based on whether you’re buying or selling options and can include significant risk of loss beyond your initial investment.

That’s in part because options can provide leverage. For a premium that’s small relative to the underlying security or index, investors can gain exposure to a relatively large contract value since one contract equates to 100 shares of the underlying asset. On the upside, investors can see a large percentage gain from small percentage moves in the underlying asset. But this leverage can be magnified to the downside as well.

The risks of buying and selling options are covered in detail in the Characteristics and Risks of Standardized Options —a disclosure document that brokerage firms are required to distribute to options customers—but below is also a brief overview.

Risks to Purchasers

Expiration Risk: In-the-money options contracts are generally automatically exercised at expiration. But to exercise a call option, the owner of the contract must have the funds to do so. Because one options contract is tied to 100 shares of stock, exercising a call can require substantial funds. For a contract with a strike price of $100, the owner of a call would need $10,000 to exercise.

Risks to Sellers

Assignment Risk: The seller of an options contract may be assigned and required to fulfill the terms of the contract by either selling or buying the underlying security at the strike price. For the sellers of equity options, assignment can happen at any time. Learn more about assignment.

Dividend Risk: There is a higher risk of assignment the day before a stock’s ex-dividend date , the date a stock begins trading without the value of its dividend payment included in the price. This is because holders of in-the-money positions might exercise early to benefit from that payout. The same risk exists for other corporate actions that might impact the price of the underlying security, such as a merger or acquisition.

Margin Risk: There are margin requirements related to some short options positions. If the value of the underlying security moves against the seller of that position, or if there is significant volatility in the underlying security or related markets, the investor might be required to deposit significant additional funds. If those funds are not deposited, the firm has the right to liquidate the options position and other securities positions without notice.  There are also margin risks that relate to being an options holder. Learn more about margin risks.

American-Style Contract An American-style contract may be exercised at any time between the date of purchase and the expiration date. U.S. equity options contracts are American-style contracts.

Assignment The assignment of an option writer (seller) obligates the writer to sell (in the case of a call) or purchase (in the case of a put) the underlying security at the specified strike price.

At-the-Money At-the-money is a term used to describe when the market price of the underlying security is equal to the strike price of an options contract.

Call In relation to options, a call is an options contract that conveys the right to buy the underlying security at a set price (the strike price) by a designated date (the expiration date). When an investor sells (or writes) a call contract on a stock, the seller is obligated to sell stock at that price if the option is exercised.

Covered Call A covered call is a situation in which an investor sells a call option while owning the underlying stock, generating income (the premium) for the investor with the risk of potentially losing the upside appreciation of the shares if the option is exercised and the investor must sell their shares.

European-Style Contract A European-style contract may only be exercised during a period of time on its expiration date. Some U.S. index options contracts are European-style contracts.

Exercise In options trading, to exercise an option means that the purchaser or seller of an options contract buys (in the case of a call) or sells (in the case of a put) the option’s underlying security at a specified price on or before a specified future date.

Expiration Date The expiration date is the date on which an option expires. If the purchaser of an option doesn’t exercise the contract prior to expiration, they lose the premium paid for the contract. The purchaser no longer has any rights, and the option no longer has value.

Implied Volatility Implied volatility is a measure of the expected volatility in the price of an underlying security that’s calculated from current market options prices rather than from historical data about price changes of the underlying stock.

In-the-Money In-the-money is a term used to describe when the market price of the underlying security is above the strike price of a call option or below the strike price of a put, giving the contract intrinsic value. An in-the-money position isn’t profitable for the buyer until the difference between the strike price and the value of the underlying security is greater than the premium paid for the contract.

Intrinsic Value In relation to options, intrinsic value is the value of an option if it were to expire immediately with the underlying stock at its current price. This is the amount by which an option is in-the-money. See also In-the-Money and Time Value .

Open Interest Open interest refers to the number of outstanding contracts in a particular options market or an options contract. This information can be broken down by puts and calls, strike price and expiration date for options tied to a particular security.

Option Holder An option holder is the purchaser of an options contract.

Out-of-the-Money Out-of-the-money is a term used to describe when the market price of the underlying security is below the strike price of a call option or above the strike price of a put, giving the contract no intrinsic value.

Premium In relation to options, a premium is the price paid by the purchaser of an options contract or the price received by the seller of an options contract. It’s determined by a number of factors, including the amount of time left until the contract expires and expectations for future volatility in the price of the underlying asset. The premium is a nonrefundable payment in full from the purchaser to the seller in exchange for the rights conveyed by the option.

Put A put is an options contract that conveys the right to sell the underlying security at a set price (strike price) by a designated date (expiration date). When an investor sells a put contract on a stock, the seller is obligated to buy stock at that price if the option is exercised.

Strike Price (Exercise Price) The strike price, or exercise price, is the price per share at which the underlying security may be purchased (in the case of a call) or sold (in the case of a put) by the option holder upon exercise of the contract.

Time Decay Time decay is a term used to describe how the theoretical value of an option "erodes" or reduces with the passage of time. Time decay is referred to in trading parlance as theta.

Time Value Time value is the portion of the option premium that is attributable to the amount of time remaining until the expiration of the option contract. Time value is whatever value the option has in addition to its intrinsic value.

Uncovered Call An uncovered call is a situation where an investor sells a call option without owning the underlying stock and, therefore, if the contract is exercised, must purchase the shares on the market, regardless of how high the price has gone up, and then sell them at the strike price. The maximum loss for the writer of an uncovered call, also known as a naked call, is theoretically unlimited.

Volatility In relation to options, volatility is a measurement of the fluctuation in the market price of the underlying security. Mathematically, volatility is the annualized standard deviation of returns.

Write In relation to options, to write is to sell an options contract. The investor who sells an options contract is called the writer. They are also considered to be short the option.

The Greeks are a number of key factors that influence the price of options contracts and are called such because of their names, which are all derived from Greek letters of the alphabet. The Greeks are all intimately related, but in the interest of simplicity, we describe them below based on what would be true for one Greek, holding all else constant.

Delta Delta is the amount an option price is expected to change based on a $1 change in the underlying stock. For call options, this is a positive number between 0 and 1. For put options, this is a negative number between 0 and -1. This number isn’t static and changes as an options contract nears expiration and if it becomes in-the-money. Delta will approach 1, or -1, for a call or put option, respectively, if it’s near expiration and in-the-money, while it will approach 0 for contracts that are out-of-the-money as expiration nears. Technically, delta is an instantaneous measure of the option's price change, so that the delta will be altered for even fractional changes in the underlying instrument.

Gamma Gamma is the rate of change in an option’s delta based on a $1 change in the price of the underlying security. The price of a contract with high gamma, a reading near 1, will be very responsive to changes in the price of the underlying security. A contract with low gamma, a reading near 0, won’t be very responsive to price changes. Gamma is typically highest for at-the-money stocks near expiration.

Theta Theta is the rate of change in an option’s theoretical value for every one-day change in the time remaining until expiration, holding all else constant. Theta becomes larger as an option nears expiration. Theta is also known as a contract’s time value. Time has value, because with more time until expiration, there is a greater probability of the underlying security’s price moving enough for the contract to pay off. See also Time Decay .

Rho Rho is the amount the theoretical price of an options contract is expected to change based on a 1 percentage-point change in interest rates, holding all else constant. Rho typically matters most for longer-term options, where a change in interest rates can lead to a greater “cost of carry,” or a greater opportunity cost associated with making the trade versus pursuing another investment.

Vega Vega is the rate of change in an option’s theoretical value in response to a one-point change in implied volatility. Vega typically increases as implied volatility increases, because a more volatile stock has a greater chance of moving enough to end up in-the-money- before expiration.

For more information about the inherent risks and characteristics of the options market, check out the  Characteristics and Risks of Standardized Options .

The Options Industry Council (OIC) , operated by the OCC , also has a lot of great resources to get you started, including a number of free webinars on a wide range of topics.

Additional Resources:

• Day Trading
• Investor Insights: Trading Options: Understanding Assignment
• Investor Insights: Zeroing In on an Options Trading Strategy: 0DTE
• Investor Alert: Binary Options: These All-Or-Nothing Options Are All-Too-Often Fraudulent
• FINRA Market Data Center
• Regulatory Notice 21-15: FINRA Reminds Members About Options Account Approval, Supervision and Margin Requirements
• Investor Bulletin: Introduction to Options
• Investor Bulletin: Opening an Options Account
• Options Disclosure Document (ODD) Quick Guide
• Options Disclosure Document (ODD)

The Importance of Investment Recordkeeping

Extended-Hours Trading: Know the Risks

Be Aware of Support Center Ad Scams

What Is Earnings Season?

Capital Gains Explained

• Find a Branch
• Schwab Brokerage 800-435-4000
• Schwab Password Reset 800-780-2755
• Schwab Bank 888-403-9000
• Schwab Intelligent Portfolios® 855-694-5208
• Schwab Trading Services 888-245-6864
• Workplace Retirement Plans 800-724-7526

... More ways to contact Schwab

  Chat

• Schwab International
• Schwab Advisor Services™
• Schwab Intelligent Portfolios®
• Schwab Alliance
• Schwab Charitable™
• Retirement Plan Center
• Equity Awards Center®
• Learning Quest® 529
• Charles Schwab Investment Management (CSIM)
• Portfolio Management Services
• Open an Account

The Risks of Options Assignment

Any trader holding a short option position should understand the risks of early assignment. An early assignment occurs when a trader is forced to buy or sell stock when the short option is exercised by the long option holder. Understanding how assignment works can help a trader take steps to reduce their potential losses.

Understanding the basics of assignment

An option gives the owner the right but not the obligation to buy or sell stock at a set price. An assignment forces the short options seller to take action. Here are the main actions that can result from an assignment notice:

• Short call assignment: The option seller must sell shares of the underlying stock at the strike price.
• Short put assignment: The option seller must buy shares of the underlying stock at the strike price.

For traders with long options positions, it's possible to choose to exercise the option, buying or selling according to the contract before it expires. With a long call exercise, shares of the underlying stock are bought at the strike price while a long put exercise results in selling shares of the underlying stock at the strike price.

When a trader might get assigned

There are two components to the price of an option: intrinsic 1 and extrinsic 2  value. In the case of exercising an in-the-money 3 (ITM) long call, a trader would buy the stock at the strike price, which is lower than its prevailing price. In the case of a long put that isn't being used as a hedge for a long stock position, the trader shorts the stock for a price higher than its prevailing price. A trader only captures an ITM option's intrinsic value if they sell the stock (after exercising a long call) or buy the stock (after exercising a long put) immediately upon exercise.

Without taking these actions, a trader takes on the risks associated with holding a long or short stock position. The question of whether a short option might be assigned depends on if there's a perceived benefit to a trader exercising a long option that another trader has short. One way to attempt to gauge if an option could be potentially assigned is to consider the associated dividend. An options seller might be more likely to get assigned on a short call for an upcoming ex-dividend if its time value is less than the dividend. It's more likely to get assigned holding a short put if the time value has mostly decayed or if the put is deep ITM and close to expiration with a wide bid/ask spread on the stock.

It's possible to view this information on the Trade page of the thinkorswim ® trading platform. Review past dividends, the price of the short call, and the price of the put at the call's strike price. While past performance cannot be relied upon to continue, this information can help a trader determine whether assignment is more or less likely.

Reducing the risk associated with assignment

If a trader has a covered call that's ITM and it's assigned, the trader will deliver the long stock out of their account to cover the assignment.

A trader with a call vertical spread 4 where both options are ITM and the ex-dividend date is approaching may want to exercise the long option component before the ex-dividend date to have long stock to deliver against the potential assignment of the short call. The trader could also close the ITM call vertical spread before the ex-dividend date. It might be cheaper to pay the fees to close the trade.

Another scenario is a call vertical spread where the ITM option is short and the out-of-the-money (OTM) option is long. In this case, the trader may consider closing the position or rolling it to a further expiration before the ex-dividend date. This move can possibly help the trader avoid having short stock on the ex-dividend date and being liable for the dividend.

Depending on the situation, a trader long an ITM call might decide it's better to close the trade ahead of the ex-dividend date. On the ex-dividend date, the price of the stock drops by the amount of the dividend. The drop in the stock price offsets what a trader would've earned on the dividend and there would still be fees on top of the price of the put.

Assess the risk

When an option is converted to stock through exercise or assignment, the position's risk profile changes. This change could increase the margin requirements, or subject a trader to a margin call, 5 or both. This can happen at or before expiration during early assignment. The exercise of a long option position can be more likely to trigger a margin call since naked short option trades typically carry substantial margin requirements.

Even with early exercise, a trader can still be assigned on a short option any time prior to the option's expiration.

1  The intrinsic value of an options contract is determined based on whether it's in the money if it were to be exercised immediately. It is a measure of the strike price as compared to the underlying security's market price. For a call option, the strike price should be lower than the underlying's market price to have intrinsic value. For a put option the strike price should be higher than underlying's market price to have intrinsic value.

2  The extrinsic value of an options contract is determined by factors other than the price of the underlying security, such as the dividend rate of the underlying, time remaining on the contract, and the volatility of the underlying. Sometimes it's referred to as the time value or premium value.

3  Describes an option with intrinsic value (not just time value). A call option is in the money (ITM) if the underlying asset's price is above the strike price. A put option is ITM if the underlying asset's price is below the strike price. For calls, it's any strike lower than the price of the underlying asset. For puts, it's any strike that's higher.

4  The simultaneous purchase of one call option and sale of another call option at a different strike price, in the same underlying, in the same expiration month.

5  A margin call is issued when the account value drops below the maintenance requirements on a security or securities due to a drop in the market value of a security or when buying power is exceeded. Margin calls may be met by depositing funds, selling stock, or depositing securities. A broker may forcibly liquidate all or part of the account without prior notice, regardless of intent to satisfy a margin call, in the interests of both parties.

Just getting started with options?

More from charles schwab.

Today's Options Market Update

Weekly Trader's Outlook

Managing Short Call Verticals | Tradecraft

Related topics.

Options carry a high level of risk and are not suitable for all investors. Certain requirements must be met to trade options through Schwab. Please read the options disclosure document titled  Characteristics and Risks of Standardized Options before considering any options transaction. Supporting documentation for any claims or statistical information is available upon request.

With long options, investors may lose 100% of funds invested.

Spread trading must be done in a margin account.

Multiple leg options strategies will involve multiple commissions.

Commissions, taxes and transaction costs are not included in this discussion, but can affect final outcome and should be considered. Please contact a tax advisor for the tax implications involved in these strategies.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

projectfinance

Step up your finance game.

Option Exercise and Assignment Explained w/ Visuals

Last updated on February 11th, 2022 , 06:38 am

Buyers of options have the right to exercise their option at or before the option’s expiration. When an option is exercised, the option holder will buy (for exercised calls) or sell (for exercised puts) 100 shares of stock per contract at the option’s strike price.

Conversely, when an option is exercised, a trader who is short the option will be assigned 100 long (for short puts) or short (for short calls) shares per contract.

• Long American style options can exercise their contract at any time.
• Long calls transfer to +100 shares of stock
• Long puts transfer to -100 shares of stock
• Short calls are assigned -100 shares of stock.
• Short puts are assigned +100 shares of stock.
• Options are typically only exercised and thus assigned when extrinsic value is very low.
• Approximately only 7% of options are exercised.

The following sequences summarize exercise and assignment for calls and puts (assuming one option contract ):

Call Buyer Exercises Option   ➜  Purchases 100 shares at the call’s strike price.

Call Seller Assigned  ➜  Sells/shorts 100 shares at the call’s strike price.

Put Buyer Exercises Option  ➜  Sells/shorts 100 shares at the put’s strike price.

Put Seller Assigned   ➜  Purchases 100 shares at the put’s strike price.

Let’s look at some specific examples to drill down on this concept.

Exercise and Assignment Examples

In the following table, we’ll examine how various options convert to stock positions for the option buyer and seller:

As you can see, exercise and assignment is pretty straightforward: when an option buyer exercises their option, they purchase (calls) or sell (puts) 100 shares of stock at the strike price . A trader who is short the assigned option is obligated to fulfill the opposite position as the option exerciser. 

Automatic Exercise at Expiration

Another important thing to know about exercise and assignment is that standard in-the-money equity options are automatically exercised at expiration. So, traders may end up with stock positions by letting their options expire in-the-money.

An in-the-money option is defined as any option with at least $0.01 of intrinsic value at expiration . For example, a standard equity call option with a strike price of 100 would be automatically exercised into 100 shares of stock if the stock price is at $100.01 or higher at expiration.

What if You Don't Have Enough Available Capital?

Even if you don’t have enough capital in your account, you can still be assigned or automatically exercised into a stock position. For example, if you only have $10,000 in your account but you let one 500 call expire in-the-money, you’ll be long 100 shares of a $500 stock, which is a $50,000 position. Clearly, the $10,000 in your account isn’t enough to buy $50,000 worth of stock, even on 4:1 margin.

If you find yourself in a situation like this, your brokerage firm will come knocking almost instantaneously. In fact, your brokerage firm will close the position for you if you don’t close the position quickly enough.

Why Options are Rarely Exercised

At this point, you understand the basics of exercise and assignment. Now, let’s dive a little deeper and discuss what an option buyer forfeits when they exercise their option.

When an option is exercised, the option is converted into long or short shares of stock. However, it’s important to note that the option buyer will lose the extrinsic value of the option when they exercise the option. Because of this, options with lots of extrinsic value remaining are unlikely to be exercised. Conversely, options consisting of all intrinsic value and very little extrinsic value are more likely to be exercised.

The following table demonstrates the losses from exercising an option with various amounts of extrinsic value:

As we can see here, exercising options with lots of extrinsic value is not favorable. 

Why? Consider the 95 call trading for $7. Exercising the call would result in an effective purchase price of $102 because shares are bought at $95, but $7 was paid for the right to buy shares at $95. 

With an effective purchase price of $102 and the stock trading for $100, exercising the option results in a loss of $2 per share, or $200 on 100 shares.

Even if the 95 call was previously purchased for less than $7, exercising an option with $2 of extrinsic value will always result in a P/L that’s $200 lower (per contract) than the current P/L. F

or example, if the trader initially purchased the 95 call for $2, their P/L with the option at $7 would be $500 per contract. However, if the trader decided to exercise the 95 call with $2 of extrinsic value, their P/L would drop to +$300 because they just gave up $200 by exercising.

7% Of Options Are Exercised

Because of the fact that traders give up money by exercising an option with extrinsic value, most options are not exercised. In fact, according to the Options Clearing Corporation,  only 7% of options were exercised in 2017 . Of course, this may not factor in all brokerage firms and customer accounts, but it still demonstrates a low exercise rate from a large sample size of trading accounts.

So, in almost all cases, it’s more beneficial to sell the long option and buy or sell shares instead of exercising. We like to call this approach a “synthetic exercise.”

Congrats! You’ve learned the basics of exercise and assignment. If you’d like to know how the exercise and assignment process actually works, continue to the next section!

Who Gets Assigned When an Option is Exercised?

With thousands of traders long and short options in the market, who actually gets assigned when one of the traders exercises their option?

In this section, we’ll run through the exercise and assignment process for options so you know how the assignment decision occurs.

If a trader is short a single option, how do they get assigned if one of a thousand other traders exercises that option?

The short answer is that the process is random. For example, if there are 5,000 traders who are long a call option and 5,000 traders who are short that call option, an account with the short option will be randomly assigned the exercise notice. The random process ensures that the option assignment system is fair

Visualizing Assignment and Exercise

The following visual describes the general process of exercise and assignment:

If you’d like, you can read the OCC’s detailed assignment procedure here  (warning: it’s intense!).

Now you know how the assignment procedure works. In the final section, we’ll discuss how to quickly gauge the likelihood of early assignment on short options.

Assessing Early Option Assignment Risk

The final piece of understanding exercise and assignment is gauging the risk of early assignment on a short option.

As mentioned early, only 7% of options were exercised in 2017 (according to the OCC). So, being assigned on short options is rare, but it does happen. While a specific probability of getting assigned early can’t be determined, there are scenarios in which assignment is more or less likely.

The following scenarios summarize  broad generalizations  of early assignment probabilities in various scenarios:

In regards to the dividend scenario, early assignment on in-the-money short calls with less extrinsic value than the dividend is more likely because the dividend payment covers the loss from the extrinsic value when exercising the option.

All in all, the risk of being assigned early on a short option is typically very low for the reasons discussed in this guide. However, it’s likely that you will be assigned on a short option at some point while trading options (unless you don’t sell options!), but at least now you’ll be prepared!

Next Lesson

Options Trading for Beginners

Intrinsic and Extrinsic Value in Options Trading Explained

Option Greeks Explained: Delta, Gamma, Theta & Vega

Additional resources.

Exercise and Assignment – CME Group

Learn About Exercise and Assignment – CME Group

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Save my name, email, and website in this browser for the next time I comment.

Please upgrade your browser

E*TRADE uses features that may not be supported by your current browser and might not work as intended. For the best user experience,  please use an updated browser .

Understanding assignment risk in Level 3 and 4 options strategies

E*TRADE from Morgan Stanley

With all options strategies that contain a short option position, an investor or trader needs to keep in mind the consequences of having that option assigned , either at expiration or early (i.e., prior to expiration). Remember that, in principle, with American-style options a short position can be assigned to you at any time. On this page, we’ll run through the results and possible responses for various scenarios where a trader may be left with a short position following an assignment.

Before we look at specifics, here’s an important note about risk related to out-of-the-money options: Normally, you would not receive an assignment on an option that expires out of the money. However, even if a short position appears to be out of the money, it might still be assigned to you if the stock were to move against you just prior to expiration or in extended aftermarket or weekend trading hours. The only way to eliminate this risk is to buy-to-close the short option.

• Short (naked) calls

Credit call spreads

Credit put spreads, debit call spreads, debit put spreads.

• When all legs are in-the-money or all are out-of-the-money at expiration

Another important note : In any case where you close out an options position, the standard contract fee (commission) will be charged unless the trade qualifies for the E*TRADE Dime Buyback Program . There is no contract fee or commission when an option is assigned to you.

Short (naked) call

If you experience an early assignment

An early assignment is most likely to happen if the call option is deep in the money and the stock’s ex-dividend date is close to the option expiration date.

If your account does not hold the shares needed to cover the obligation, an early assignment would create a short stock position in your account. This may incur borrowing fees and make you responsible for any dividend payments.

Also note that if you hold a short call on a stock that has a dividend payment coming in the near future, you may be responsible for paying the dividend even if you close the position before it expires.

An early assignment generally happens when the put option is deep in the money and the underlying stock does not have an ex-dividend date between the current time and the expiration of the option.

Short call + long call

(The same principles apply to both two-leg and four-leg strategies)

This would leave your account short the shares you’ve been assigned, but the risk of the position would not change . The long call still functions to cover the short share position. Typically, you would buy shares to cover the short and simultaneously sell the long leg of the spread.

Pay attention to short in-the-money call legs on the day prior to the stock’s ex-dividend date, because an assignment that evening would put you in a short stock position where you are responsible for paying the dividend. If there’s a risk of early assignment, consider closing the spread.

Short put + long put

Early assignment would leave your account long the shares you’ve been assigned. If your account does not have enough buying power to purchase the shares when they are assigned, this may create a Fed call in your account.

However, the long put still functions to cover the position because it gives you the right to sell shares at the long put strike price. Typically, you would sell the shares in the market and close out the long put simultaneously.

Here's a call example

• Let’s say that you’re short a 100 call and long a 110 call on XYZ stock; both legs are in-the-money.
• You receive an assignment notification on your short 100 call, meaning you sell 100 shares of XYZ stock at 100. Now, you have $10,000 in short stock proceeds, your account is short 100 shares of stock, and you still hold the long 110 call.
• Exercise your long 110 call, which would cover the short stock position in your account.
• Or, buy 100 shares of XYZ stock (to cover your short stock position) and sell to close the long 110 call.

Here's a put example:

• Let’s say that you’re short a 105 put and long a 95 put on XYZ stock; the short leg is in-the-money.
• You receive an assignment notification on your short 105 put, meaning you buy 100 shares of XYZ stock at 105. Now, your account has been debited $10,500 for the stock purchase, you hold 100 shares of stock, and you still hold the long 95 put.
• The debit in your account may be subject to margin charges or even a Fed call, but your risk profile has not changed.
• You can sell to close 100 shares of stock and sell to close the long 95 put.

Long call + short call

Debit spreads have the same early assignment risk as credit spreads only if the short leg is in-the-money.

An early assignment would leave your account short the shares you’ve been assigned, but the risk of the position would not change . The long call still functions to cover the short share position. Typically, you would buy shares to cover the short share position and simultaneously sell the remaining long leg of the spread.

Long put + short put

An early assignment would leave your account long the shares you’ve been assigned. If your account does not have enough buying power to purchase the shares when they are assigned, this may create a Fed call in your account.

All spreads that have a short leg

(when all legs are in-the-money or all are out-of-the-money)

Pay attention to short in-the-money call legs on the day prior to the stock’s ex-dividend date because an assignment that evening would put you in a short stock position where you are responsible for paying the dividend. If there’s a risk of early assignment, consider closing the spread.

However, the long put still functions to cover the long stock position because it gives you the right to sell shares at the long put strike price. Typically, you would sell the shares in the market and close out the long put simultaneously. 

What to read next...

How to buy call options, how to buy put options, potentially protect a stock position against a market drop, looking to expand your financial knowledge.

You're reading a free article with opinions that may differ from The Motley Fool's Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Ready for Options Trading? Make Sure You Understand Assignment First

Your first assignment: decoding this important options term before you start trading.

The options market can seem to have a language of its own. To the average investor, there are likely a number of unfamiliar terms, but for an individual with a short options position—someone who has sold call or put options—there is perhaps no term more important than " assignment "—the fulfilling of the requirements of an options contract.

When someone buys options to open a new position ("Buy to Open"), they are buying a  right —either the right to buy the underlying security at a specified price (the strike price) in the case of a call option, or the right to sell the underlying security in the case of a put option.

Image source: Getty Images

On the flip side, when an individual sells, or writes, an option to open a new position ("Sell to Open"), they are accepting an  obligation —either an obligation to sell the underlying security at the strike price in the case of a call option or the obligation to buy that security in the case of a put option. When an individual sells options to open a new position, they are said to be "short" those options. The seller does this in exchange for receiving the option's premium from the buyer.

American-style options allow the buyer of a contract to exercise at any time during the life of the contract, whereas European-style options can be exercised only during a specified period just prior to expiration. For an investor selling American-style options, one of the risks is that the investor may be called upon at any time during the contract's term to fulfill its obligations. That is, as long as a short options position remains open, the seller may be subject to "assignment" on any day equity markets are open. 

What is assignment?

An option assignment represents the seller's obligation to fulfill the terms of the contract by either selling or buying the underlying security at the exercise price. This obligation is triggered when the buyer of an option contract exercises their right to buy or sell the underlying security.

To ensure fairness in the distribution of American-style and European-style option assignments, the Options Clearing Corporation (OCC), which is the options industry clearing house, has an established process to randomly assign exercise notices to firms with an account that has a short option position. Once a firm receives an assignment, it then assigns this notice to one of its customers who has a short option contract of the same series. This short option contract is selected from a pool of such customers, either at random or by some other procedure specific to the brokerage firm. 

How does an investor know if an option position will be assigned?

While an option seller will always have some level of uncertainty, being assigned may be a somewhat predictable event. Only about 7% of options positions are typically exercised, but that does not imply that investors can expect to be assigned on only 7% of their short positions. Investors may have some, all or none of their short positions assigned.

And while the majority of American-style options exercises (and assignments) happen on or near the contract's expiration, a long options holder can exercise their right at any time, even if the underlying security is halted for trading. Someone may exercise their options early based upon a significant price movement in the underlying security or if shares become difficult to borrow as the result of a pending corporate action such as a buyout or takeover. 

Note: European-style options can only be exercised during a specified period just prior to expiration. In U.S. markets, the majority of options on commodity and index futures are European-style, while options on stocks and exchange-traded funds (ETF) are American-style. So, while SPDR S&P 500 , or SPY options, which are options tied to an ETF that tracks the S&P 500, are American-style options, S&P 500 Index options, or SPX options, which are tied to S&P 500 futures contracts, are European-style options.

What happens after an option is assigned?

An investor who is assigned on a short option position is required to meet the terms of the written option contract upon receiving notification of the assignment. In the case of a short equity call, the seller of the option must deliver stock at the strike price and in return receives cash. An investor who doesn't already own the shares will need to acquire and deliver shares in return for cash in the amount of the strike price, multiplied by 100, since each contract represents 100 shares. In the case of a short equity put, the seller of the option is required to purchase the stock at the strike price.

How might an investor's account balance fluctuate after opening a short options position?

It is normal to see an account balance fluctuate after opening a short option position. Investors who have questions or concerns or who do not understand reported trade balances and assets valuations should contact their brokerage firm immediately for an explanation. Please keep in mind that short option positions can incur substantial risk in certain situations.

What does "XYZ July 50" mean? XYZ = the ticker symbol of the security July = the month when the option will expire 50 = $50, the strike price on the option

For example, say XYZ stock is trading at $40 and an investor sells 10 contracts for XYZ July 50 calls at $1.00, collecting a premium of $1,000, since each contract represents 100 shares ($1.00 premium x 10 contracts x 100 shares). Consider what happens if XYZ stock increases to $60, the call is exercised by the option holder and the investor is assigned. Should the investor not own the stock, they must now acquire and deliver 1,000 shares of XYZ at a price of $50 per share. Given the current stock price of $60, the investor's short stock position would result in an unrealized loss of $9,000 (a $10,000 loss from delivering shares $10 below current stock price minus the $1,000 premium collected earlier).

Note: Even if the investor's short call position had not been assigned, the investor's account balance in this example would still be negatively affected—at least until the options expire if they are not exercised. The investor's account position would be updated to reflect the investor's unrealized loss—what they  could  lose if an option is exercised (and they are assigned) at the current market price. This update does not represent an actual loss (or gain) until the option is actually exercised and the investor is assigned. 

What happens if an investor opened a multi-leg strategy, but one leg is assigned?

American-style option holders have the right to exercise their options position prior to expiration regardless of whether the options are in-, at- or out-of-the-money. Investors can be assigned if any market participant holding calls or puts of the same series submits an exercise notice to their brokerage firm. When one leg is assigned, subsequent action may be required, which could include closing or adjusting the remaining position to avoid potential capital or margin implications resulting from the assignment. These actions may not be attractive and may result in a loss or a less-than-ideal gain.

If an investor's short option is assigned, the investor will be required to perform in accordance with their obligation to purchase or deliver the underlying security, regardless of the overall risk of their position when taking into account other options that may be owned as part of the overall multi-leg strategy. If the investor owns an option that serves to limit the risk of the overall spread position, it is up to the investor to exercise that option or to take other action to limit risk. 

Below are a couple of examples that underscore how important it is for every investor to understand the risks associated with potential assignment during market hours and potentially adverse price movements in afterhours trading.

Example #1: An investor is short March 50 XYZ puts and long March 55 XYZ puts. At the close of business on March expiration, XYZ is priced at $56 per share, and both puts are out of the money, which means they have no intrinsic value. However, due to an unexpected news announcement shortly after the closing bell, the price of XYZ drops to $40 in after-hours trading. This could result in an assignment of the short March 50 puts, requiring the investor to purchase shares of XYZ at $50 per share. The investor would have needed to exercise the long March 55 puts in order to realize the gain on the initial multi-leg position. If the investor did not exercise the March 55 puts, those puts may expire and the investor may be exposed to the loss on the XYZ purchase at $50, a $10 per share loss with XYZ now trading at $40 per share, without receiving the benefit of selling XYZ at $55.

Example #2: An investor is short March 50 XYZ puts and long April 50 XYZ puts. At the close of business on March expiration, XYZ is priced at $45 per share, and the investor is assigned XYZ stock at $50. The investor will now own shares of XYZ at $50, along with the April 50 XYZ puts, which may be exercised at the investor's discretion. If the investor chooses not to exercise the April 50 puts, they will be required to pay for the shares that were assigned to them on the short March 50 XYZ puts until the April 50 puts are exercised or shares are otherwise disposed of.

Note: In either example, the short put position may be assigned prior to expiration at the discretion of the option holder. Investors can check with their brokerage firm regarding their option exercise procedures and cut-off times.

For options-specific questions, you may contact OCC's Investor Education team at  [email protected] , via chat on  OptionsEducation.org  or  subscribe to the OIC newsletter . If you have questions about options trading in your brokerage account, we encourage you to contact your brokerage firm. If after doing so you have not resolved the issue or have additional concerns, you can  contact FINRA .

Subscribe to  FINRA's newsletter  for more information about saving and investing.

FINRA Staff has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.

• Search Search Please fill out this field.

How to Trade Options in 5 Steps

1. assess your readiness, 2. choose a broker and get approved to trade options, 3. create a trading plan, 4. understand the tax implications, 5. keep learning and managing risk, pros and cons of trading options, buying calls (long calls), buying puts (long puts), covered calls, protective puts, long straddles, other options strategies, the bottom line, options trading: how to trade stock options in 5 steps.

• Investing: An Introduction
• Stock Market Definition
• Primary and Secondary Markets
• How to Buy/Sell Stocks
• Market Hours
• Stock Exchanges
• How to Start Investing in Stocks: A Beginner’s Guide
• What Owning a Stock Means
• The Basics of Order Types
• Position Sizing
• Executing Trades
• When to Sell a Stock
• Income, Value, Growth Stocks
• Commissions
• Investing and Trading Differences
• Stocks vs. ETFs
• Stocks vs. Mutual Funds
• ETFs vs. Mutual Funds
• What Is a Bond?
• Bond Yield Definition
• Basic Bond Characteristics
• How to Buy a Bond
• Corporate Bonds
• Government Bonds
• Municipal Bonds
• Options vs. Futures
• Essential Options Trading CURRENT ARTICLE
• Diversification
• Measuring Investment Returns
• Corporate Actions
• Stock Fundamentals
• Essentials of Analyzing Stocks
• Evaluating Company Financials
• Technical Analysis

Options are a type of contract that gives the buyer the right to buy or sell a security at a specified price at some point in the future. An option holder is essentially paying a premium for the right to buy or sell the security within a certain timeframe.

If market prices become unfavorable for option holders, they will let the option expire worthless and not exercise this right, ensuring that potential losses are not higher than the premium. If the market moves in a favorable direction, the holder may choose to exercise the contract.

Options are generally divided into "call" and "put" contracts. With a  call option , the buyer of the contract purchases the right to buy the underlying asset in the future at a predetermined price, known as the exercise price or strike price . With a  put option , the buyer acquires the right to sell the underlying asset in the future at the predetermined price.

Key Takeaways

• Options trading may sound risky or complex for beginner investors, and so they often stay away.
• Some basic strategies using options, however, can help a novice investor protect their downside and hedge market risk.
• Here we look at four such strategies: long calls, long puts, covered calls, protective puts, and straddles.
• Options trading can be complex, so be sure to understand the risks and rewards involved before diving in.

xPACIFICA / Getty Images

Embarking on the path to options trading encompasses five pivotal steps. First, you should assess your financial health, tolerance for risk and options knowledge. This is fundamental to align with the volatile nature of options trading. Then you should choose the right broker. This involves evaluating fees, platform capabilities, and support services.

Next, you need to gain approval for options trading, proving your market savvy and financial preparedness to the brokers. Success in options trading hinges on crafting a comprehensive trading plan that includes clear strategies, risk management techniques, and defined objectives. Lastly, you should understand the tax implications of options trading and continue to learn and manage your risks.

Options trading can be more complex and riskier than stock trading. It requires a good grasp of market trends, the ability to read and interpret data and indicators, and an understanding of volatility. You need to be honest about your risk tolerance, investment goals, and the time you can dedicate to this activity.

You should look for a broker that supports options trading and suits your needs in terms of fees, platform usability, customer service, and educational resources. The best options brokers should offer a good balance between costs and features.

Most brokers require you to fill out an options approval form as part of the account setup process. This usually involves disclosing your financial situation, trading experience, and understanding of the risks involved. Brokers offer different levels of options trading approval based on the risk associated with various strategies, from basic covered calls to more advanced strategies like straddles or iron condors .

Define your trading strategy, including the types of options strategies you plan to execute, your entry and exit criteria, and how you will manage risk. Paper trading, or simulated trading, can be a valuable tool for testing your strategies without financial risk.

Options trading has unique tax considerations. The Internal Revenue Services (IRS) treats options transactions differently depending on the strategy and outcome. It is advisable to consult a tax professional to understand the implications for your situation.

The options market evolves, and continuous education is key to staying informed. You need to be always aware of the risks involved in options trading and use risk management techniques to protect your capital.

Potential upside gains

Losses may be limited to premium paid

Leverage can increase rewards

Risk hedging

Difficult to price

Advance investment knowledge

Leverage can multiply potential losses

Potentially unlimited risk when selling options

There are some advantages to trading options for those looking to make a directional bet in the market. If you think the price of an asset will rise, you can buy a call option using less capital than the asset itself. At the same time, if the price falls instead, your losses are limited to the premium paid for the options and no more. This could be a preferred strategy for traders who:

• Are "bullish" or confident about a particular stock, exchange-traded fund (ETF), or index and want to limit risk
• Want to utilize leverage  to take advantage of rising prices.

Options are essentially leveraged instruments in that they allow traders to amplify the potential upside benefit by using smaller amounts than would otherwise be required if trading the underlying asset itself. So, instead of laying out $10,000 to buy 100 shares of a $100 stock, you could hypothetically spend, say, $2,000 on a call contract with a strike price 10% higher than the current market price.

A standard equity option contract on a stock controls 100 shares of the underlying security .

Suppose a trader wants to invest $5,000 in Apple ( AAPL ), trading at around $165 per share. With this amount, they can purchase 30 shares for $4,950. Suppose then that the price of the stock increases by 10% to $181.50 over the next month. Ignoring any brokerage commission or transaction fees, the trader’s portfolio will rise to $5,445, leaving the trader with a net dollar return of $495, or 10% on the capital invested.

Now, let's say a call option on the stock with a strike price of $165 that expires about a month from now costs $5.50 per share or $550 per contract. Given the trader's available investment budget, they can buy nine options for a cost of $4,950. Because the option contract controls 100 shares, the trader is effectively making a deal on 900 shares. If the stock price increases 10% to $181.50 at expiration, the option will expire in the money (ITM) and be worth $16.50 per share (for a $181.50 to $165 strike), or $14,850 on 900 shares. That's a net dollar return of $9,990, or 200% on the capital invested, a much larger return compared to trading the underlying asset directly.

Risk/Reward

The trader's potential loss from a long call is limited to the premium paid. Potential profit is unlimited because the option payoff will increase along with the underlying asset price until expiration, and there is theoretically no limit to how high it can go.

Image by Julie Bang © Investopedia 2019

If a call option gives the holder the right to purchase the underlying at a set price before the contract expires, a put option gives the holder the right to sell the underlying at a set price. This is a preferred strategy for traders who:

• Are bearish on a particular stock, ETF, or index, but want to take on less risk than with a  short-selling  strategy
• Want to utilize leverage to take advantage of falling prices

A put option works effectively in the exact opposite direction from the way a call option does, with the put option gaining value as the price of the underlying decreases. Though short-selling also allows a trader to profit from falling prices, the risk with a short position is unlimited because there is theoretically no limit to how high a price can rise. With a put option, if the underlying ends up higher than the strike price, the option will simply expire worthless.

Say that you think the price of a stock is likely to decline from $60 to $50 or lower based on corporate earnings, but you don't want to risk selling the stock short in case earnings do not disappoint. Instead, you can buy the $50 put for a premium of $2.00. If the stock does not fall below $50, or if indeed it rises, the most you will lose is the $2.00 premium.

However, if you are right and the stock drops to $45, you would make $3 ($50 minus $45. less the $2 premium).

The potential loss on a long put is limited to the premium paid for the options. The maximum profit from the position is capped because the underlying price cannot drop below zero, but as with a long call option, the put option leverages the trader's return.

Unlike the long call or long put, a covered call is a strategy that is overlaid onto an existing long position in the underlying asset. It is essentially an upside call that is sold in an amount that would cover that existing position size. In this way, the covered call writer collects the option premium as income, but also limits the upside potential of the underlying position. This is a preferred position for traders who:

• Expect no change or a slight increase in the underlying's price, collecting the full option premium
• Are willing to limit upside potential in exchange for some downside protection

A covered call strategy involves buying 100 shares of the underlying asset and selling a call option against those shares. When the trader sells the call, the option's premium is collected, thus lowering the  cost basis on the shares and providing some downside protection. In return, by selling the option, the trader is agreeing to sell shares of the underlying at the option's strike price, thereby capping the trader's upside potential.

Suppose a trader buys 1,000 shares of BP ( BP ) at $44 per share and simultaneously writes 10 call options (one contract for every 100 shares) with a strike price of $46 expiring in one month, at a cost of $0.25 per share, or $25 per contract and $250 total for the 10 contracts. The $0.25 premium reduces the cost basis on the shares to $43.75, so any drop in the underlying down to this point will be offset by the premium received from the option position, thus offering limited downside protection.

If the share price rises above $46 before expiration, the short call option will be exercised (or "called away"), meaning the trader will have to deliver the stock at the option's strike price. In this case, the trader will make a profit of $2.25 per share ($46 strike price - $43.75 cost basis).

However, this example implies the trader does not expect BP to move above $46 or significantly below $44 over the next month. As long as the shares do not rise above $46 and get called away before the options expire, the trader will keep the premium free and clear and can continue selling calls against the shares if desired.

If the share price rises above the strike price before expiration, the short call option can be exercised and the trader will have to deliver shares of the underlying at the option's strike price, even if it is below the market price. In exchange for this risk, a covered call strategy provides limited downside protection in the form of the premium received when selling the call option.

A protective put involves buying a downside put in an amount to cover an existing position in the underlying asset. In effect, this strategy puts a lower floor below which you cannot lose more. Of course, you will have to pay for the option's premium. In this way, it acts as a sort of insurance policy against losses. This is a preferred strategy for traders who own the underlying asset and want downside protection

Thus, a protective put is a long put, like the strategy we discussed above; however, the goal, as the name implies, is downside protection versus attempting to profit from a downside move. If a trader owns shares with a bullish sentiment in the long run but wants to protect against a decline in the short run, they may purchase a protective put. 

If the price of the underlying increases and is above the put's strike price at maturity , the option expires worthless and the trader loses the premium but still has the benefit of the increased underlying price. On the other hand, if the underlying price decreases, the trader’s portfolio position loses value, but this loss is largely covered by the gain from the put option position. Hence, the position can effectively be thought of as an insurance strategy.

The trader can set the strike price below the current price to reduce premium payment at the expense of decreasing downside protection. This can be thought of as deductible insurance. Suppose, for example, that an investor buys 1,000 shares of Coca-Cola ( KO ) at a price of $44 and wants to protect the investment from adverse price movements over the next two months. The following put options are available:

The table shows that the cost of protection increases with the level thereof. For example, if the trader wants to protect the investment against any drop in price, they can buy 10 at-the-money (ATM)  put options at a strike price of $44 for $1.23 per share, or $123 per contract, for a total cost of $1,230. However, if the trader is willing to tolerate some level of downside risk, choosing a less costly out-of-the-money (OTM) option such as the $40 put could also work. In this case, the cost of the option position will be much lower at only $200.

If the price of the underlying stays the same or rises, the potential loss will be limited to the option premium, which is paid as insurance. If, however, the price of the underlying drops, the loss in capital will be offset by an increase in the option's price and is limited to the difference between the initial stock price and strike price plus the premium paid for the option. In the example above, at the strike price of $40, the loss is limited to $4.20 per share ($44 - $40 + $0.20).

Buying a straddle lets you capitalize on future volatility but without having to take a bet whether the move will be to the upside or downside—either direction will profit.

Here, an investor buys both a call option and a put option at the same strike price and expiration on the same underlying. Because it involves purchasing two at-the-money options, it is more expensive than some other strategies.

Consider someone who expects a particular stock to experience large price fluctuations following an earnings announcement on Jan. 15. Currently, the stock’s price is $100.

The investor creates a straddle by purchasing both a $5 put option and a $5 call option at a $100 strike price which expires on Jan. 30. The  net option premium  for this straddle is $10. The trader would realize a profit if the price of the underlying security was above $110 (which is the strike price plus the net option premium) or below $90 (which is the strike price minus the net option premium) at the time of expiration.

A long straddle can only lose a maximum of what you paid for it. Since it involves two options, however, it will cost more than either a call or put by itself. The maximum reward is theoretically unlimited to the upside and is bounded to the downside by the strike price (e.g., if you own a $20 straddle and the stock price goes to zero, you would make a max. of $20).

The strategies outlined here are straightforward and can be employed by most novice traders or investors. There are, however, more nuanced strategies than simply buying calls or puts. While we discuss many of these types of strategies elsewhere, here is just a brief list of some other basic options positions that would be suitable for those comfortable with the ones discussed above:

• Married put strategy: Similar to a protective put, the married put involves buying an at-the-money (ATM) put option in an amount to cover an existing long position in the stock. In this way, it mimics a call option (sometimes called a synthetic call ).
• Protective collar strategy: With a protective collar , an investor who holds a long position in the underlying buys an out-of-the-money (i.e., downside) put option, while at the same time writing an out-of-the-money (upside) call option for the same stock.
• Long strangle strategy: Similar to the straddle, the buyer of a strangle goes long on an out-of-the-money call option and a put option at the same time. They will have the same expiration date, but they have different strike prices: The put strike price should be below the call strike price. This involves a lower outlay of premium than a straddle but also requires the stock to move either higher to the upside or lower to the downside in order to be profitable.
• Vertical Spreads : A vertical spread involves the simultaneous buying and selling of options of the same type (i.e., either puts or calls) and expiry, but at different strike prices. These can be constructed as either bull or bear spreads, which will profit when the market rises or falls, respectively. Spreads are less costly than a long call or long put since you are also receiving the options premium from the one you sold. However, this also limits your potential upside to the width between the strikes.

The biggest advantage to buying options is that you have great upside potential with losses limited only to the option's premium. However, this can also be a drawback since options will expire worthless if the stock does not move enough to be in-the-money. This means that buying a lot of out-of-the-money options can be costly.

Options can be very useful as a source of leverage and risk hedging. For example, a bullish investor who wishes to invest $1,000 in a company could potentially earn a far greater return by purchasing $1,000 worth of call options on that firm, as compared to buying $1,000 of that company’s shares. In this sense, the call options provide the investor with a way to leverage their position by increasing their buying power. On the other hand, if that same investor already has exposure to that same company and wants to reduce that exposure, they could hedge their risk by selling put options against that company.

The main disadvantage of options contracts is that they are complex and difficult to price. This is why options are often considered a more advanced investment vehicle, suitable only for experienced investors. In recent years, they have become increasingly popular among retail investors. Because of their capacity for outsized returns or losses, investors should make sure they fully understand the potential implications before entering into any options positions. Failing to do so can lead to devastating losses.

There is also a large risk selling options in that you take on theoretically unlimited risk with profits limited to the premium (price) received for the option.

Is Options Trading better than Investing in Stocks?

Determining whether options trading is better than investing in stocks depends on your investment goals, risk tolerance, time horizon, and market knowledge. Both have their advantages and disadvantages, and the best choice varies based on the individual.

It should be known that neither options trading nor stock investing is inherently better. They serve different purposes and suit different profiles. A balanced approach for some traders and investors may involve incorporating both strategies into their portfolio, using stocks for long-term growth and options for leverage, income, or hedging. Consider consulting with a financial advisor to align any investment strategy with your financial goals and risk tolerance.

Is Options Trading Right for Me?

Figuring out whether options trading is right for you involves a self-assessment of several key factors, including your investment goals, risk tolerance, market knowledge, and commitment to ongoing learning. Thus, you should understand your goals, assess your risk tolerance, evaluate your market knowledge and willingness to learn, consider your financial situation, consider your ability to commit time to options trading as well as develop your emotional discipline. It is always advisable to start with education and perhaps paper trading to gain experience and confidence before committing real capital to options trading.

What Are the Levels of Options Trading?

Most brokers assign different levels of options trading approval based on the riskiness involved and complexity involved. The four strategies discussed here would all fall under the most basic levels, level 1 and Level 2. Customers of brokerages will typically have to be approved for options trading up to a certain level and maintain a margin account .

• Level 1: covered calls and protective puts, when an investor already owns the underlying asset
• Level 2: long calls and puts, which would also include straddles and strangles
• Level 3: options spreads , involving buying one or more options and at the same time selling one or more different options of the same underlying
• Level 4: selling (writing) naked options , which here means unhedged, posing the possibility for unlimited losses

Where Do Options Trade?

Listed options trade on specialized exchanges such as the Chicago Board Options Exchange (CBOE) , the Boston Options Exchange (BOX) , or the International Securities Exchange (ISE) , among others. These exchanges are largely electronic nowadays, and orders you send through your broker will be routed to one of these exchanges for best execution.

Can You Trade Options for Free?

Though many brokers now offer commission-free trading in stocks and ETFs, options trading still involves fees or commissions. There will typically be a fee-per-trade (e.g., $4.95) plus a commission per contract (e.g., $0.50 per contract). Therefore, if you buy 10 options under this pricing structure, the cost to you would be $4.95 + (10 x $0.50) = $9.95.

Options offer alternative strategies for investors to profit from trading underlying securities. There are advanced strategies like the butterfly and Christmas tree that involve different combinations of options contracts. Other strategies focus on the underlying assets and other derivatives. Basic strategies for beginners include buying calls, buying puts, selling covered calls, and buying protective puts. There are advantages to trading options rather than underlying assets, such as downside protection and leveraged returns, but there are also disadvantages, like the requirement for upfront premium payment. The first step to trading options is to choose a broker.

U.S. Securities and Exchange Commission. " Investor Bulletin: An Introduction to Options ."

cnbc.com, " Want to trade options? Before jumping on the bandwagon, here's what you need to know "

Tradetron, " Paper Trading Options: A Comprehensive Guide to Mastering Virtual Trading "

Fidelity, " What are options, and how do they work? "

Charles Schwab, " How are Options Taxed? "

Fidelity, " Introduction to Options "

Financial Industry Regulatory Authority. " Options: Buying and Selling ."

CME Group Education. " Covered Calls ."

Charles Schwab. " Options Strategy: The Covered Call ."

Fidelity. " Protective Put (Long Stock + Long Put) ."

CME Group Education. " Straddles ."

Fidelity. " Straddling the Market for Opportunities ."

• Terms of Service
• Editorial Policy
• Privacy Policy

The Mechanics of Option Trading, Exercise, and Assignment

Options were originally traded in the over-the-counter ( OTC ) market , where the terms of the contract were negotiated. The advantage of the OTC market over the exchanges is that the option contracts can be tailored: strike prices, expiration dates, and the number of shares can be specified to meet the needs of the option buyer. However, transaction costs are greater and liquidity is less.

Option trading really took off when the first listed option exchange — the Chicago Board Options Exchange ( CBOE )— was organized in 1973 to trade standardized contracts, greatly increasing the market and liquidity of options. The CBOE was the original exchange for options, but, by 2003, it has been superseded in size by the electronic Nasdaq International Securities Exchange (ISE), based in New York. Most options sold in Europe are traded through electronic exchanges. Other exchanges for options in the United States include: New York Stock Exchange , and the NASDAQtrader.com .

Option exchanges are central to the trading of options:

• they establish the terms of the standardized contracts
• they provide the infrastructure — both hardware and software — to facilitate trading, which is increasingly computerized
• they link together investors, brokers, and dealers on a centralized system, so that traders get the best bid/ask prices
• they guarantee trades by taking the opposite side of each transaction
• they establish the trading rules and procedures

Options are traded just like stocks — the buyer buys at the ask price and the seller sells at the bid price . The settlement time for option trades is 1 business day ( T+1 ). However, to trade options, an investor must have a brokerage account and be approved for trading options and must also receive a copy of the booklet Characteristics and Risks of Standardized Options .

The option holder, unlike the holder of the underlying stock, has no voting rights in the corporation, and is not entitled to any dividends. Brokerage commissions are still charged for options even though the commissions for stocks have been free for a while. Prices for most options range from $0.65 to $1 per contract .

The Options Clearing Corporation (OCC)

The Options Clearing Corporation ( OCC ) is the counterparty to all option trades. The OCC issues, guarantees, and clears all option trades involving its member firms, including all U.S. option exchanges, and ensures that sales are transacted according to the current rules. The OCC is jointly owned by its member firms — the exchanges that trade options — and issues all listed options, and controls and effects all exercises and assignments. To provide a liquid market, the OCC guarantees all trades by acting as the other party to all purchases and sales of options.

The OCC, like other clearing companies, is the direct participant in every purchase and sale of an option contract. When an option writer or holder sells his contracts to someone else, the OCC serves as an intermediary in the transaction. The option writer sells his contract to the OCC and the option buyer buys it from the OCC.

The OCC publishes statistics, news on options, and any notifications about changes in the trading rules, or the adjustment of certain option contracts because of a stock split or that were subjected to unusual circumstances, such as a merger of companies whose stock was the underlying security to the option contracts.

The OCC operates under the jurisdiction of both the Securities and Exchange Commission ( SEC ) and the Commodities Futures Trading Commission ( CFTC ). Under its SEC jurisdiction, OCC clears transactions for put and call options on common stocks and other equity issues, stock indexes, foreign currencies, interest rate composites and single-stock futures . As a registered Derivatives Clearing Organization ( DCO ) under CFTC jurisdiction, the OCC clears and settles transactions in futures and options on futures .

The Exercise of Options by Option Holders and the Assignment to Fulfill the Contract to Option Writers

When an option holder wants to exercise his option, he must notify his broker of the exercise, and if it is the last trading day for the option, the broker must be notified before the exercise cut-off time , which will probably be earlier than on trading days before the last day, and the cut-off time may differ for different option classes or for index options. Although policies differ among brokerages, it is the duty of the option holder to notify his broker to exercise the option before the cut-off time.

When the broker is notified, then the exercise instructions are sent to the OCC, which then assigns the exercise to one of its Clearing Members who are short in the same option series as is being exercised. The Clearing Member will then assign the exercise to one of its customers who is short in the option. The customer is selected by a specific procedure, usually on a first-in, first-out basis, or some other fair procedure approved by the exchanges. Thus, there is no direct connection between an option writer and a buyer.

To ensure contract performance, option writers are required to post margin, the amount depending on how much the option is in the money. If the margin is deemed insufficient, then the option writer will be subjected to a margin call. Option holders don't need to post margin because they will only exercise the option if it is in the money. Options, unlike stocks, cannot be bought on margin.

Because the OCC is always a party to an option transaction, an option writer can close out his position by buying the same contract back, even while the contract buyer retains his position, because the OCC draws from a pool of contracts with no connection to the original contract writer and buyer.

A diagram outlining the exercise and assignment of a call.

Example: No Direct Connection between Investors Who Write Options and those Who Buy Them

John Call-Writer writes an option that legally obligates him to provide 100 shares of JXYZ for the price of $30 until April. The OCC buys the contract, adding it to the millions of other option contracts in its pool. Sarah Call-Buyer buys a contract that has the same terms that John Call-Writer wrote — in other words, it belongs to the same option series . However, option contracts have no name on them. Sarah buys from the OCC, just as John sold to the OCC, and she just gets a contract giving her the right to buy 100 shares of JXYZ for $30 per share until April.

Scenario 1 — Exercises of Options are Assigned According to Specific Procedures

In February, the price of JXYZ rises to $35, and Sarah thinks it might go higher in the long run, but since March and April generally are volatile times for most stocks, she decides to exercise her call (sometimes called calling the stock ) to buy JXYZ stock at $30 per share to hold the stock indefinitely. She instructs her broker to exercise her call; her broker forwards the instructions to the OCC, which then assigns the exercise to one of its participating members who provided the call for sale; the participating member, in turn, assigns it to an investor who wrote such a call; in this case, it happened to be John's brother, Sam Call-Writer. John got lucky this time. Sam, unfortunately, either must turn over his appreciated shares of JXYZ, or he'll have to buy them in the open market to provide them. This is the risk that an option writer must take — an option writer never knows when he'll be assigned an exercise when the option is in the money.

Scenario 2 — Closing Out an Option Position by Buying Back the Contract

John Call-Writer decides that JXYZ might climb higher in the coming months, and so decides to close out his short position by buying a call contract with the same terms that he wrote — one that is in the same option series. Sarah, on the other hand, decides to maintain her long position by keeping her call contract until April. This can happen because there are no names on the option contracts. John closes his short position by buying the call back from the OCC at the market price, which may be higher or lower than what he paid, resulting in either a profit or a loss. Sarah can keep her contract because when she sells or exercises her contract, it will be with the OCC, not with John, and Sarah can be sure that the OCC will fulfill the terms of the contract if she exercises it later.

Thus, the OCC allows each investor to act independently of the other .

When the assigned option writer must deliver stock, she can deliver stock already owned, buy it on the market for delivery, or ask her broker to go short on the stock and deliver the borrowed shares. However, finding borrowed shares to short may not always be possible, so this method may not be available.

If the assigned call writer buys the stock in the market for delivery, the writer only needs the cash in his brokerage account to pay for the difference between what the stock cost and the strike price of the call, since the writer will immediately receive cash from the call holder for the strike price. Similarly, if the writer is using margin, then the margin requirements apply only to the difference between the purchase price and the strike price of the option. Full margin requirements, however, apply to shorted stock.

An assigned put writer will need either the cash or the margin to buy the stock at the strike price, even if he intends to sell the stock immediately after the exercise of the put. When the call holder exercises, he can keep the stock or immediately sell it. However, he must have the margin, if he has a margin account, or cash, for a cash account, to pay for the stock, even if he sells it immediately. He can also use the delivered stock to cover a short in the stock. (Note: equity requirements differ because an assigned call writer immediately receives the cash upon delivery of the shares, whereas a put writer or a call holder who purchased the shares may decide to keep the stock.)

Example: Fulfilling a Naked Call Exercise

A call writer receives an exercise notice on 10 call contracts with a strike of $30 per share on JXYZ stock on which she is still short. The stock currently trades at $35 per share. She does not own the stock, so, to fulfill her contract, she must buy 1,000 shares of stock in the market for $35,000 then sell it for $30,000, resulting in an immediate loss of $5,000 minus the commissions of the stock purchase and assignment.

Both the exercise and assignment incur brokerage commissions for both holder and assigned writer. Generally, the commission is smaller to sell the option than it is to exercise it. However, there may be no choice if it is the last day of trading before expiration. Both the buying and selling of options and the exercise or assignment are settled in 1 business day after the trade ( T+1 ).

Often, a writer will want to cover his short by buying the written option back on the open market. However, once he receives an assignment, then it is too late to cover his short position by closing the position with a purchase. Assignment is usually selected from writers still short at the end of the trading day. A possible assignment can be anticipated if the option is in the money at expiration, the option is trading at a discount, or the underlying stock is about to pay a large dividend.

The OCC automatically exercises any option that is in the money by at least $0.01 ( automatic exercise , Exercise-by-Exception , Ex-by-Ex ), unless notified by the broker not to. A customer may not want to exercise an option that is only slightly in the money if the transaction costs would exceed the net profit from the exercise. Despite the automatic exercise by the OCC, the option holder should notify his broker by the exercise cut-off time , which may be before the end of the trading day, of an intent to exercise. Exact procedures depend on the broker.

Any option that is sold on the last trading day before expiration would likely be bought by a market maker. Because a market maker's transaction costs are lower than for retail customers, a market maker may exercise an option even if it is only a few cents in the money. Thus, any option writer who does not want to be assigned should close out his position before expiration day if there is any chance that it will be in the money even by a few pennies.

Early Exercise

Sometimes, an option will be exercised before its expiration day — called early exercise , or premature exercise . Because options have a time value in addition to intrinsic value, most options are not exercised early. However, there is nothing to prevent someone from exercising an option, even if it is not profitable to do so, and sometimes it does occur, which is why anyone who is short an option should expect the possibility of being assigned early.

When an option is trading below parity (below its intrinsic value), then arbitrageurs can take advantage of the discount to profit from the difference, because their transaction costs are very low. An option with a high intrinsic value will have little time value, and so, because of the difference between supply and demand in the market at any given moment, the option could be trading for less than its true worth. An arbitrageur will almost certainly take advantage of the price discrepancy for an instant profit. Anyone who is short an option with a high intrinsic value should expect a good possibility of being assigned an exercise.

Example: Early Exercise by Arbitrageurs Profiting from an Option Discount

JXYZ stock is currently at $40 per share. Calls on the stock with a strike of $30 are selling for $9.80. This is a difference of $0.20 per share, enough of a difference for an arbitrageur, whose transaction costs are typically much lower than for a retail customer, to profit immediately by selling short the stock at $40 per share, then covering his short by exercising the call for a net of $0.20 per share minus the arbitrageur's small transaction costs.

Option discounts will only occur when the time value of the option is small, because either it is deep in the money or the option will soon expire.

Option Discounts Arising from an Imminent Dividend Payment on the Underlying Stock

When a large dividend is paid by the underlying stock, its price drops on the ex-dividend date, resulting in a lower value for the calls. The stock price may remain lower after the payment, because the dividend payment lowers the book value of the company. This causes many call holders to either exercise early to collect the dividend, or to sell the call before the drop in stock price. When many call holders sell at once, the calls sell at a discount to the underlying, creating opportunities for arbitrageurs to profit from the price difference. However, there is risk the transaction will lose money, because the dividend payment and drop in stock price may not equal the premium paid for the call, even if the dividend exceeds the time value of the call.

Example: Arbitrage Profit/Loss Scenario for a Dividend-Paying Stock

JXYZ stock is currently trading at $40 per share and will pay a dividend of $1 the next day. A call with a $30 strike is selling for $10.20, the $0.20 being the time value of the premium. So an arbitrageur decides to buy the call and exercise it to collect the dividend. Since the dividend is $1, but the time value is only $0.20, this could lead to a profit of $0.80 per share, but on the ex-dividend date, the stock drops to $39. Adding the $1 dividend to the share price yields $40, which is still less than buying the stock for $30 + $10.20 for the call. It might be profitable if the stock does not drop as much on the ex-date or it recovers after the ex-date sufficiently to make it profitable. But this is a risk for the arbitrageur, and this transaction is, thus, known as risk arbitrage , because the profit is not guaranteed.

2019 Statistics for the Fate of Options

Data Source: https://www.optionseducation.org/referencelibrary/faq/options-exercise

All option writers who didn't close out their position earlier by buying an offsetting contract made the maximum profit — the premium — on those contracts that expired. Option writers have lost at least something when the option is exercised, because the option holder wouldn't exercise it unless it was in the money. The more the exercised option was in the money, the greater the loss is for the assigned option writer and the greater the profits for the option holder. A closed out transaction could be at a profit or a loss for both holders and writers of options, but closing out a transaction is usually done either to maximize profits or to minimize losses, based on expected changes in the price of the underlying security until expiration.

We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here . By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service .

New to Zacks? Get started here.

Member Sign In

Don't Know Your Password?

• Zacks #1 Rank
• Zacks Industry Rank
• Zacks Sector Rank
• Equity Research
• Mutual Funds
• Mutual Fund Screener
• ETF Screener
• Earnings Calendar
• Earnings Releases
• Earnings ESP
• Earnings ESP Filter
• Stock Screener
• Premium Screens
• Basic Screens
• Thematic Screens
• Research Wizard
• Personal Finance
• Money Management
• Retirement Planning
• Tax Information
• My Portfolio
• Create Portfolio
• Style Scores
• Testimonials
• Zacks.com Tutorial

Services Overview

• Zacks Ultimate
• Zacks Investor Collection
• Zacks Premium

Investor Services

• ETF Investor
• Home Run Investor
• Income Investor
• Stocks Under $10
• Value Investor
• Top 10 Stocks

Other Services

• Method for Trading
• Zacks Confidential

Trading Services

• Black Box Trader
• Counterstrike
• Headline Trader
• Insider Trader
• Large-Cap Trader
• Options Trader
• Short Sell List
• Surprise Trader
• Alternative Energy

You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.

If you wish to go to ZacksTrade, click OK . If you do not, click Cancel.

Image: Bigstock

Implied Volatility Surging for Alight (ALIT) Stock Options

Investors in Alight, Inc. ( ALIT Quick Quote ALIT - Free Report ) need to pay close attention to the stock based on moves in the options market lately. That is because the Nov. 15, 2024 $3.00 Call had some of the highest implied volatility of all equity options today.

What is Implied Volatility?

Implied volatility shows how much movement the market is expecting in the future. Options with high levels of implied volatility suggest that investors in the underlying stocks are expecting a big move in one direction or the other. It could also mean there is an event coming up soon that may cause a big rally or a huge sell-off. However, implied volatility is only one piece of the puzzle when putting together an options trading strategy.

What do the Analysts Think?

Clearly, options traders are pricing in a big move for Alight shares, but what is the fundamental picture for the company? Currently, Alight is a Zacks Rank #4 (Sell) in the Internet - Software industry that ranks in the Top 39% of our Zacks Industry Rank. Over the last 60 days, no analysts have increased their earnings estimates for the current quarter, while two analysts have revised their estimates downward. The net effect has taken our Zacks Consensus Estimate for the current quarter from 18 cents per share to 10 cents in that period.

Given the way analysts feel about Alight right now, this huge implied volatility could mean there’s a trade developing. Oftentimes, options traders look for options with high levels of implied volatility to sell premium. This is a strategy many seasoned traders use because it captures decay. At expiration, the hope for these traders is that the underlying stock does not move as much as originally expected.

Looking to Trade Options?

Check out the simple yet high-powered approach that Zacks Executive VP Kevin Matras has used to close recent double and triple-digit winners. In addition to impressive profit potential, these trades can actually reduce your risk.

Click to see the trades now >>

See More Zacks Research for These Tickers

Normally $25 each - click below to receive one report free:.

Alight, Inc. (ALIT) - free report >>

Published in

This file is used for Yahoo remarketing pixel add

Due to inactivity, you will be signed out in approximately:

Site search

• Secret Base
• Fantasy Football
• Arizona Cardinals
• Atlanta Falcons
• Baltimore Ravens
• Buffalo Bills
• Carolina Panthers
• Chicago Bears
• Cincinnati Bengals
• Cleveland Browns
• Dallas Cowboys
• Denver Broncos
• Detroit Lions
• Green Bay Packers
• Houston Texans
• Indianapolis Colts
• Jacksonville Jaguars
• Kansas City Chiefs
• Las Vegas Raiders
• Los Angeles Rams
• Miami Dolphins
• Minnesota Vikings
• New England Patriots
• New Orleans Saints
• New York Giants
• New York Jets
• Philadelphia Eagles
• Pittsburgh Steelers
• Los Angeles Chargers
• San Francisco 49ers
• Seattle Seahawks
• Tampa Bay Buccaneers
• Tennessee Titans
• Washington Commanders
• Atlanta Hawks
• Boston Celtics
• Brooklyn Nets
• Cleveland Cavaliers
• Dallas Mavericks
• Detroit Pistons
• Golden State Warriors
• Houston Rockets
• Los Angeles Lakers
• Milwaukee Bucks
• Minnesota Timberwolves
• New York Knicks
• Philadelphia 76ers
• Phoenix Suns
• Portland Trail Blazers
• San Antonio Spurs
• Sonics Rising
• Toronto Raptors
• Washington Wizards
• G-League and International
• Bracketology
• Women’s CBB
• Cinderella Stories
• View team list
• Swish Appeal
• Los Angeles Sparks
• Minnesota Lynx
• New York Liberty
• Washington Mystics
• Arizona Diamondbacks
• Atlanta Braves
• Baltimore Orioles
• Boston Red Sox
• Chicago Cubs
• Chicago White Sox
• Cincinnati Reds
• Cleveland Guardians
• Colorado Rockies
• Detroit Tigers
• Houston Astros
• Kansas City Royals
• Los Angeles Angels
• Los Angeles Dodgers
• Miami Marlins
• Milwaukee Brewers
• Minnesota Twins
• New York Mets
• New York Yankees
• Oakland Athletics
• Philadelphia Phillies
• Pittsburgh Pirates
• San Diego Padres
• San Francisco Giants
• Seattle Mariners
• St. Louis Cardinals
• Tampa Bay Rays
• Texas Rangers
• Toronto Blue Jays
• Washington Nationals
• MLB Trade Rumors
• Sabermetrics
• English Premier League
• Aston Villa
• Manchester City
• Tottenham Hotspur
• Leicester City
• Southampton
• Manchester United
• Leeds United
• German Bundesliga
• Bayern Munich
• Italian Serie A
• Inter Milan
• Spanish La Liga
• Atletico Madrid
• Real Madrid
• Women’s Soccer
• Mexican Soccer
• U.S. Soccer
• Fantasy Soccer
• MMA Fighting
• MMA Fighters
• MMA Fight Schedule

Filed under:

The NFL private equity ownership vote, explained

Private equity is entering NFL ownership, and that’s not good for fans.

Share this story

• Share this on Facebook
• Share this on Twitter
• Share this on Reddit
• Share All sharing options

Share All sharing options for: The NFL private equity ownership vote, explained

The NFL has long maintained the illusion of its teams being home-spun, family-owned entities — and the final spoiler of that illusion is likely to come on Tuesday. Owners are set to vote on a proposal which would allow up to 10 percent of a team to be sold to private equity firms , further increasing the gap between ownership and fans, while giving money making ventures a seat at the table when it comes to how a franchise operates.

Private involvement in the NFL has been of interest to several teams for some time. Current ownership rules mandate that a single “lead owner” must have at least a 30 percent stake in an organization, with no more than 25 individuals as part of an ownership group. That drastically changes with private equity, as an investment entity with potentially thousands of members can now have a stake in a team.

The elephant in the room

Wording of the vote is critical, and most important is a clause that says only “permitted” private equity firms would be able to buy in to franchises. That one word does all the heavy lifting, as it potentially blocks the largest and most controversial PIF from gaining a foothold in the NFL: Saudi Arabia’s PIF.

The Saudi PIF is a $925 billion wealth fund chaired by Mohammed bin Salman, the crown prince of Saudi Arabia. It’s his most critical venture, as bin Salman aims to diversify his nation’s wealth in preparation for fossil fuel reserve either drying up, or the world to move away from crude oil.

While those long term goals are fairly benign, the immediate impact of the Saudi PIF is to reform the global image of Saudi Arabia. It’s a pivotal element of the nation’s “sportswashing” campaign , which aims to use sport success around the globe to distract from Saudi Arabia’s human rights violations, and extremely prejudicial Sharia law. The basic concept is that by individuals will have a positive view of Saudi Arabia, or even ignore their social issues by using money to fund sport success in the west.

This has lead to the establishment of LIV Golf, a takeover of Newcastle United in the English Premier League, as well as significant investment in tennis’ ATP and WTA.

As it stands the Saudi PIF could be left off the NFL’s list of permitted investors, but things are much more complicated that that.

The devil is in the details

While the NFL is likely to ban the Saudi PIF from direct investment, it would be very easy for Saudi interests to have significant pull in the NFL through its proxies. In addition to substantial investments in sports, the Saudi PIF funnels vast amounts of wealth into other public investment funds to increase its reach into areas that would otherwise be blocked off to their investment.

SoftBank in Japan and Blackstone in the United States are two investment funds with significant ties to the Saudi PIF who theoretically could buy into the NFL, circumventing the league’s rules on “permitted” funds.

Is this bad for fans?

Unquestionably the answer is yes.

There are no NFL owners who are your friends, but it’s better to have a devil you know. The limited ownership of NFL teams allows for clearer, more transparent criticism to pass to those in charge when it comes to on-field success, fan experience, and gripes over stadium funding.

The motivations for owning an NFL team run a gamut of interests. Some crave the glory of owning a winning team, some simply like being a member of a very exclusive ownership club, and there are plenty who are in it for the money. However, when it comes to PIF there is only one goal: Turn a profit. Everything is secondary to return on investment, and it’s unclear how that will manifest itself when it comes to team ownership.

Dire possibilities range from teams playing closer to the salary floor to maximize profits, to pressure for relocation. The issue isn’t so much the 10 percent investment in isolation, but other business ventures for an owner that could be impacted by not keeping these massive investment firms happy.

It’s this factor that NFL owners haven’t fully discussed. It’s more or less designed to satiate fans from being angry by thinking “how important is 10 percent, anyway?” without the additional element that small ownership groups could be held hostage by their minority investment because of deals that exist outside the NFL, either overtly or through unspoken quid pro quo.

Of course, this is an intentionally bleak reading of what private investment could mean — but it’s a highly plausible outcome of expanding the NFL’s tight ownership rules to funds with wealth many orders of magnitude higher than the owners themselves. It’s also unclear whether there would be any ownership votes to approve funding to a specific team, which has always been the league’s failsafe against bad ownership.

This was bound to happen

The fact of the matter is that resisting private equity ownership was always a losing battle. The popularity of football has causes rights deals to swell, and with it the value of franchises has skyrocketed.

In 2014 the Buffalo Bills sold to Terry and Kim Pegula for a then-record price of $1.4B. In 2024 the Washington Commanders sold for $6.05B. The value of NFL teams will only go up, and increasingly they’re moving out of the realm of possibility for some of the richest people in the world.

This means that future ownership consortiums will need more funding, giving them power beyond their 10 percent on paper. It’s a sad, but inevitable reality of the NFL’s rampant success.

Now we just hope this doesn’t have dire consequences for fans, because NFL owners are going to pass this and don’t really care what happens next — because after all, they aren’t your friends.

Next Up In NFL

• The Titans telling fringe players they made the team is the best 5 minutes you’ll watch today
• The Patriots are right to be patient with Drake Maye
• The Baltimore Ravens are overrated, and so is their quarterback
• Sometimes being petty in sports is all we have, and Robert Griffin III discussed it with us
• The Dallas Cowboys built the best RB room of 2019 in 2024
• The Vikings’ disastrous 2022 NFL Draft class will haunt them for a long time

Loading comments...

Sign up for the newsletter sign up for the sb nation daily roundup newsletter, thanks for signing up.

Check your inbox for a welcome email.

Oops. Something went wrong. Please enter a valid email and try again.

An official website of the United States government

Here's how you know

Official websites use .gov A .gov website belongs to an official government organization in the United States.

Secure .gov websites use HTTPS A lock ( Lock Locked padlock ) or https:// means you’ve safely connected to the .gov website. Share sensitive information only on official, secure websites.

News & Events

• Beginners Guide to Crop Insurance
• Past Events
• RMA Latest Announcements

USDA Makes Indemnity Payments to Producers Impacted by Hurricane Debby

  Back to News Releases

WASHINGTON, Aug. 23, 2024 – The U.S. Department of Agriculture (USDA) announced the counties that have triggered for payment under the Hurricane Insurance Protection-Wind Index (HIP-WI) endorsement for Hurricane Debby. Approved Insurance Providers (AIP) have 30 days to issue payments to producers. USDA’s Risk Management Agency (RMA) first offered HIP-WI for the 2020 hurricane season, and last year, the endorsement was expanded to include the Tropical Storm Option. Under HIP-WI, producers will receive over $200 million in indemnities for hurricane-related losses from Hurricane Debby. These payments will directly help farmers and rural communities recover. 

“Hurricane Debby caused devastating damage across the southeast impacting many agricultural operations,” said RMA Administrator Marcia Bunger. “The Risk Management Agency’s hurricane and tropical storm endorsement provides added protection for producers who want more coverage options. We understand the importance of timely payments that help producers overcome natural disasters and assist with recovery efforts.”  

Currently, estimated indemnities by state include:  

• Florida: $11.8 million for hurricane, and $300 thousand for tropical storm 
• Georgia: $45.6 million for tropical storm 
• North Carolina: $97.8 million for tropical storm 
• South Carolina: $54.3 million for tropical storm 

These payments build on the almost $50 million paid for Hurricane Beryl earlier this year. 

Producers do not need to file a claim to receive an indemnity payment under HIP-WI. If a county is triggered, the AIP will issue an indemnity payment in the coming weeks. Triggered counties were identified by RMA in  Product Management Bulletin 24-052 and will also be available in the county’s actuarial documents. Eligible producers will receive a HIP-WI indemnity payment in addition to any applicable indemnity payments due to them through their underlying crop insurance policy. AIPs are using the standard notice of loss and claims process to timely process those underlying crop insurance policy claims.   

HIP-WI covers a portion of the deductible of the underlying crop insurance policy when the county, or an adjacent one, is hit with sustained hurricane-force winds from a named hurricane based on data from the National Hurricane Center at the National Oceanic and Atmospheric Administration (NOAA). 

The Tropical Storm Option covers named tropical storms, as reported by NOAA, with maximum sustained winds exceeding 34 knots and precipitation at least six inches over a four-day period. Both the wind trigger and precipitation trigger must occur for an indemnity to be paid. 

The HIP-WI endorsement, including the Tropical Storm Option, are available in  select counties  in Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Louisiana, Maine, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Texas, Vermont, and Virginia.  

During the past four years, HIP-WI has been a successful risk management tool for many in affected areas, with over $800 million paid in indemnities to date. 

To find additional information about the policy, including frequently asked questions, videos, and a fact sheet, please visit the  HIP-WI website .  

More Information  

Crop insurance is sold and delivered solely through private crop insurance agents. A list of crop insurance agents is available at all USDA Service Centers and online at the  RMA Agent Locator . Learn more about crop insurance and the modern farm safety net at  rma.usda.gov or by contacting your  RMA Regional Office .  

Within the past month, RMA made insurance improvements for specialty crop producers by expanding coverage options to additional crops, like almonds, apples, blueberries, grapes, and walnuts through the  Enhanced Coverage Option as well as increasing premium support to make the policy more affordable for producers. RMA also announced expansions to the  grapevine insurance program as well as the availability of the new  Fire Insurance Protection-Smoke Index endorsement that’s available for grapes grown in California starting with the 2025 crop year.  

RMA secures the future of agriculture by providing world class risk management tools to rural America through Federal crop insurance and risk management education programs. RMA provides policies for more than 130 crops and is constantly working to adjust and create new policies based on producer needs and feedback. 

USDA touches the lives of all Americans each day in so many positive ways. Under the Biden-Harris administration, USDA is transforming America’s food system with a greater focus on more resilient local and regional food production, fairer markets for all producers, ensuring access to safe, healthy and nutritious food in all communities, building new markets and streams of income for farmers and producers using climate smart food and forestry practices, making historic investments in infrastructure and clean energy capabilities in rural America, and committing to equity across the Department by removing systemic barriers and building a workforce more representative of America. To learn more, visit  usda.gov .  

                                                                                        #

                                        USDA is an equal opportunity provider, employer and lender.

Risk Management Agency:

FPAC Press Desk [email protected]

Trading Options: Understanding Assignment

OCC/OIC and FINRA collaborated to create this primer on options assignment.

DOWNLOAD ARTICLE   (PDF)

The options market can seem to have a language of its own. To the average investor, there are likely a number of unfamiliar terms, but for an individual with a short options position—someone who has sold call or put options—there is perhaps no term more important than ‘assignment’ —the fulfilling of the requirements of an options contract.

When someone buys options to open a new position (Buy to Open), they are buying a right — either the right to buy the underlying security at a specified price (the strike price) in the case of a call option, or the right to sell the underlying security in the case of a put option. 

On the flip side, when an individual sells, or writes, an option to open a new position (Sell to Open), they are accepting an obligation — either an obligation to sell the underlying security at the strike price in the case of a call option or the obligation to buy that security in the case of a put option. When an individual sells options to open a new position, they are said to be ‘short’ those options. The seller does this in exchange for receiving the option’s premium from the buyer.

American-style options allow the buyer of a contract to exercise at any time during the life of the contract, whereas European-style options can be exercised only during a specified period just prior to expiration. For an investor selling American-style options, one of the risks is that the investor may be called upon at any time during the contract’s term to fulfill its obligations. That is, as long as a short options position remains open, the seller may be subject to ‘assignment’ on any day equity markets are open.  

What is assignment? 

An option assignment represents the seller’s obligation to fulfill the terms of the contract by either selling or buying the underlying security at the exercise price. This obligation is triggered when the buyer of an option contract exercises their right to buy or sell the underlying security.

To ensure fairness in the distribution of American-style and European-style option assignments, The Options Clearing Corporation (OCC), which is the options industry clearing house, has an established process to randomly assign exercise notices to firms with an account that has a short option position. Once a firm receives an assignment, it then assigns this notice to one of its customers who has a short option contract of the same series. This short option contract is selected from a pool of such customers, either at random or by some other procedure specific to the brokerage firm. 

How does an investor know if an option position will be assigned? 

While an option seller will always have some level of uncertainty, being assigned may be a somewhat predictable event. Only about 7% of options positions are typically exercised, but that does not imply that investors can expect to be assigned on only 7% of their short positions. Investors may have some, all or none of their short positions assigned. 

And while the majority of American-style options exercises (and assignments) happen on or near the contract’s expiration, a long options holder can exercise their right at any time, even if the underlying security is halted for trading. Someone may exercise their options early based upon a significant price movement in the underlying security or if shares become difficult to borrow as the result of a pending corporate action such as a buyout or takeover.  

Note: European-style options can only be exercised during a specified period just prior to expiration. In  U.S. markets, the majority of options on commodity and index futures are European-style, while options on stocks and exchange-traded funds (ETF) are American-style. So, while SPDR S&P 500, or SPY options, which are options tied to an ETF that tracks the S&P 500, are American-style options, S&P 500 Index options, or  SPX options, which are tied to S&P 500 futures contracts, are European-style options. 

What happens after an option is assigned? 

An investor who is assigned on a short option position is required to meet the terms of the written option contract upon receiving notification of the assignment. In the case of a short equity call, the seller of the option must deliver stock at the strike price and in return receives cash. An investor who doesn’t already own the shares will need to acquire and deliver shares in return for cash in the amount of the strike price, multiplied by 100, since each contract represents 100 shares. In the case of a short equity put, the seller of the option is required to purchase the stock at the strike price.

How might an investor’s account balance fluctuate after opening  a short options position?

It is normal to see an account balance fluctuate after opening a short option position. Investors who have questions or concerns or who do not understand reported trade balances and assets valuations should contact their brokerage firm immediately for an explanation. Please keep in mind that short option positions can incur substantial risk in certain situations. 

For example, say XYZ stock is trading at $40 and an investor sells 10 contracts for XYZ July 50 calls at $1.00, collecting a premium of $1,000, since each contract represents 100 shares ($1.00 premium x 10 contracts x 100 shares). Consider what happens if XYZ stock increases to $60, the call is exercised by the option holder and the investor is assigned. Should the investor not own the stock, they must now acquire and deliver 1,000 shares of XYZ at a price of $50 per share. Given the current stock price of $60, the investor’s short stock position would result in an unrealized loss of $9,000 (a $10,000 loss from delivering shares $10 below current stock price minus the $1,000 premium collected earlier).

Note: Even if the investor’s short call position had not been assigned, the investor’s account balance in this example would still be negatively affected—at least until the options expire if they are not exercised. The investor’s account position would be updated to reflect the investor’s unrealized loss—what they could lose if an option is exercised (and they are assigned) at the current market price. This update does not represent  an actual loss (or gain) until the option is actually exercised and the investor is assigned.  

What happens if an investor opened a multi-leg strategy, but one leg is assigned?

American-style option holders have the right to exercise their options position prior to expiration regardless of whether the options are in-, at- or out-of-the-money. Investors can be assigned if any market participant holding calls or puts of the same series submits an exercise notice to their brokerage firm. When one leg is assigned, subsequent action may be required, which could include closing or adjusting the remaining position to avoid potential capital or margin implications resulting from the assignment. These actions may not be attractive and may result in a loss or a less-than-ideal gain. 

If an investor’s short option is assigned, the investor will be required to perform in accordance with their obligation to purchase or deliver the underlying security, regardless of the overall risk of their position when taking into account other options that may be owned as part of the overall multi-leg strategy. If the investor owns an option that serves to limit the risk of the overall spread position, it is up to the investor to exercise that option or to take other action to limit risk.  

Below are a couple of examples that underscore how important it is for every investor  to understand the risks associated with potential assignment during market hours and potentially  adverse price movements in afterhours trading.

For options-specific questions, you may contact OCC’s Investor Education team at [email protected] , via chat on OptionsEducation.org or subscribe to the OIC newsletter . If you have questions about options trading in your brokerage account, we encourage you to contact your brokerage firm. If after doing so you have not resolved the issue or have additional concerns, you can contact FINRA . Subscribe to FINRA’s newsletter for more information about saving and investing.

• Why Merrill
• Open An Account
• Why Choose Merrill
• Pricing & Fees
• BofA Preferred Rewards
• Investing & Banking Connected
• Mobile Investing
• Sustainable Investing
• Awards & Accolades

888.637.3343

To find the small business retirement plan that works for you, contact:

Learn more about an advisor's background on FINRA's BrokerCheck

• Personalized Investment Options
• Merrill Edge ® Self-Directed
• Merrill Guided Investing
• Invest with an Advisor
• Compare All
• General Investing
• Education Accounts
• Mutual Funds
• Fixed Income & Bonds
• Margin Trading
• Order Execution Quality
• Idea Builder
• Merrill Edge MarketPro ®
• Early in Your Career
• Peak Earning Years
• Nearing Retirement
• In Retirement
• View all Tools
• Tax Resources
• Plan for College
• College Cost Calculator
• 529 Plan State Tax Calculator
• Plan for Retirement
• Personal Retirement Calculator
• Retirement Account Selector Tool
• 401(k) Rollover Calculator
• Traditional IRA
• Income in Retirement
• Retirement Account Types
• Retirement Tools
• Small Business 401(k)
• Individual 401(k)
• View All Plans

• Get Started Investing
• Investing Basics
• Advanced Investing
• Market & Investing Insights
• Account Options
• Individual Investing Account
• Joint Investing Account
• Custodial Investing Account
• Traditional Inherited IRA
• Roth Inherited IRA
• 529 College Savings Plans
• Custodial UGMA/UTMA Accounts
• Business Investor Account
• lnvesting Costs & Fees
• Pricing & Fees
• Investing & Banking Connected
• Awards & Accolades
• Merrill Edge ® Self-Directed
• Investing with an Advisor
• Compare all
• Fixed Income & Bonds
• Merrill Edge MarketPro ®
• Retirement Account Selector
• 401(k) Rollover Tool
• View all tools
• New to Investing
• Tax Plannning
• Investing by Life Stages
• View all plans
• Market & Investing Insights
• Help When You Want It Find answers to common questions  at Merrill Schedule an appointment  with Merrill To find the small business retirement plan that works for you, contact: [email protected]

Exercising Options

Submitting exercise or do-not-exercise instructions:.

• All Instructions must be called in and are only applicable to long positions
• Do-Not-Exercise instructions can only be submitted the day of expiration up through market close
• Exercise instructions can be submitted at any time until expiration
• Merrill may take action at any time to close out positions that may not be able to be supported if exercised/assigned. It is extremely important to monitor your open options positions and be aware of your risk exposure.

What's the Net?

Automatic exercise/ assignment, early exercise/assignment, without the jargon, what are options, what are the types of options, what are the greeks, similar articles, options pricing, equity option basics, equity index options.

This material is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or investment strategy. Merrill offers a broad range of brokerage, investment advisory (including financial planning) and other services. Additional information is available in our Client Relationship Summary (PDF) .

I'd Like to

• Create an Emergency Fund
• Create an Investment Strategy
• Open an Account  with Merrill

Discover Merrill

• Bank of America Preferred Rewards
• Online Trading
• Awards & Recognition

Representatives are available 24/7

[email protected]

Unlimited $0 Trades

Investing in securities involves risks, and there is always the potential of losing money when you invest in securities.

The performance data contained herein represents past performance which does not guarantee future results. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. For performance information current to the most recent month end, please contact us.

Net Asset Value (NAV) returns are based on the prior-day closing NAV value at 4 p.m. ET. NAV returns assume the reinvestment of all dividend and capital gain distributions at NAV when paid.

Market price returns are based on the prior-day closing market price, which is the average of the midpoint bid-ask prices at 4 p.m. ET. Market price returns do not represent the returns an investor would receive if shares were traded at other times.

Returns include fees and applicable loads. Since Inception returns are provided for funds with less than 10 years of history and are as of the fund's inception date. 10 year returns are provided for funds with greater than 10 years of history.

Before investing consider carefully the investment objectives, risks, and charges and expenses of the fund, including management fees, other expenses and special risks. This and other information may be found in each fund's prospectus or summary prospectus, if available. Always read the prospectus or summary prospectus carefully before you invest or send money. Prospectuses can be obtained by contacting us.

Expense Ratio – Gross Expense Ratio is the total annual operating expense (before waivers or reimbursements) from the fund's most recent prospectus. You should also review the fund's detailed annual fund operating expenses which are provided in the fund's prospectus.

This material is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or investment strategy. Merrill offers a broad range of brokerage, investment advisory (including financial planning) and other services. Additional information is available in our Client Relationship Summary (Form CRS) (PDF) .

Banking products are provided by Bank of America, N.A. and affiliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation ("BofA Corp.").

Merrill Lynch Life Agency Inc. (MLLA) is a licensed insurance agency and wholly owned subsidiary of BofA Corp.

© 2024 Bank of America Corporation. All rights reserved.

• SI SWIMSUIT
• SI SPORTSBOOK

New York Yankees' Slugger Addresses Looming Offseason Club Option

Pat ragazzo | 7 hours ago.

• New York Yankees

It has been another rough season filled with injuries and underperformance for this New York Yankees ' slugger.

That being said, first baseman Anthony Rizzo is nearing a return from the IL and should reclaim his starting job once he rejoins the big-league club.

For Rizzo, there is a lot at stake as the Yankees will have to make a decision on his $17 million club option in the offseason, which includes a $6 million buyout.

The 35-year-old still has a chance to force the Yankees' hand by having a strong September and postseason. While it seems unlikely that the Yankees will pickup his option, they could potentially bring him back on a one-year deal if he is productive down the stretch.

As he progresses on his rehab assignment, Rizzo was asked by a reporter in Somerset on Wednesday if this looming club option is on his mind.

"Obviously I love being a Yankee. There's no place I'd rather be playing than in New York in the Bronx," Rizzo said. "I'm going to go out there and try to be myself.

"When that is all said and done we will see what happens. The joy, the passion, the drive is lit more than ever right now to come back and be myself."

Anthony Rizzo on if he thinks about if the Yankees will pick up his club option for 2025: "I love being a Yankee, there's no place I'd rather be playing than in New York in the Bronx. The joy, the passion, the drive is lit more than ever right now to come back and be myself" pic.twitter.com/dcLkjmSkxT — Yankees Videos (@snyyankees) August 28, 2024

Rizzo suffered a fractured right forearm on June 16 in a game against the Boston Red Sox. He has now missed over two and a half months of action, but could be back with the Yankees by this weekend.

Rookie Ben Rice initially stepped up at first base in Rizzo's absence, but has not seen much playing time as of late and has hit just .116 with a .456 OPS in his last 30 games.

Rizzo was slashing .223/.289/.341 with a .630 OPS and eight home runs in 70 games prior to his injury. The lefty swinger also saw his 2023 campaign derailed due to concussion-like symptoms.

The Yankees are hoping to get vintage Rizzo back to help contribute to their lineup as they push for the AL East crown and a deep postseason run. And Rizzo will be playing for his Yankee future over the next month-plus of action.

PAT RAGAZZO

Pat Ragazzo is the reporter, publisher, site manager and executive editor for the Mets and Yankees websites on Sports Illustrated. Pat was selected as The Top Reporter & Publisher of the Year 2024 by the International Association of Top Professionals (IAOTP) for outstanding leadership, dedication, and commitment to the industry. He appears on several major TV Network stations including: NBC4, CBS2, FOX5, PIX11, SNY and NY1; and is frequently heard on ESPN New York FM 98.7 FM and WFAN Sports Radio 101.9 FM as a guest. Pat also serves as the Mets insider for the "Allow Me 2 Be Frank" podcast hosted by Frank "The Tank" Fleming of Barstool Sports. You can follow him on Twitter/X: @ragazzoreport.

Follow ragazzoreport