Who gets exercised when you're a seller

systematictrader

systematictrader

I always wondered, when an option is exercised by a buyer, the person on the other side is picked how ?

Is there a process?

is it random

or is it the original person that sold it to him, if so does that mean the exchange has to keep track of that very specific buyer and seller?? What if the seller closed out his position but the buyer held on? If this is the case isnt that too tedious for the exchange to keep track of whos who?
 
systematictrader said:
I always wondered, when an option is exercised by a buyer, the person on the other side is picked how ?

Is there a process?

is it random

or is it the original person that sold it to him, if so does that mean the exchange has to keep track of that very specific buyer and seller?? What if the seller closed out his position but the buyer held on? If this is the case isnt that too tedious for the exchange to keep track of whos who?
More...
I've wondered this myself, and you inspired me to Google it.

tl;dr: At the CBOE, the counterparty is selected either randomly or FIFO:

CBOE said:
Upon receipt of an exercise notice, OCC will then assign this exercise notice to one or more Clearing Members with short positions in the same series in accordance with its established procedures. The Clearing Member will, in turn, assign one or more of its customers (either randomly or on a first in first out basis) who hold short positions in that series. The assigned Clearing Member will then be obligated to sell (in the case of a call) or buy (in the case of a put) the underlying shares of stock at the specified strike price. OCC then arranges with a stock clearing corporation designated by the Clearing Member of the holder who exercises the option for delivery of shares of stock (in the case of a call) or delivery of the settlement amount (in the case of a put) to be made through the facilities of a correspondent clearing corporation.
More...

http://www.cboe.com/learncenter/pdf/understanding.pdf
 
Wow interesting, random
Is the last i thought it would be, typically those that exercise leave no room
For error or money on the table but ive seen scenarios where its not and the seller gets a semi guaranteed profit, of course its by sheer luck
And rarely
Happens but does happen
 
You must log in or register to reply here.
Back
Top