November 8, 1995 Supplement to Characteristics and Risks of Standardized Options

The following supplements material in Chapter VIII of the February 1994 edition of Characteristics and Risks of Standardized Options under the captions "How to Exercise" and "Assignment" in respect of certain flexibly structured foreign currency options: If the expiration date of an option falls on a day on which an options market is open for trading in that option, a brokerage firm's last cut-off time for accepting exercise instructions prior to the option's expiration may be on the expiration date. OCC has modified procedures for the assignment of exercises of certain flexibly structured foreign currency options. Under the modified procedures, OCC assigns exercises in a series of the options to each Clearing Member account in approximately the same proportion that the number of short positions of that series carried in the account bears to the total number of short options positions of that series. (A description of the modified procedures is available from OCC on request.) The rules of the options market on which such options are traded may either require or permit their member firms to allocate assignments among customers using a similar proportional method. As a result, there is a substantial likelihood that an investor who has a short position in a series of options for which the modified procedures are applicable will be assigned exercises with respect to at least a part of that position whenever options of that series are exercised. Investors should determine from their brokerage firms which flexibly structured foreign currency options are subject to the firm's proportional method of allocation and how that method works.

[Back to Chapter XI | 1996 Supplement ]