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training_data/curated/text/a5a3c2d81b07d26d40ee445b03202c958916e4b416a56ca51205d75e4cb9dd39.txt

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+16 Part I: Bask Properties ol Stock Options 
+Example: The holder of an XYZ January 45 call option wishes to exercise his right to 
+buy XYZ stock at $45 per share. He instructs his broker to do so. The broker then 
+notifies the administrative section of the brokerage firm that handles such matters. 
+The firm then notifies the OCC that they wish to exercise one contract of the XYZ 
+January 45 call series. 
+Now the OCC takes over the handling. OCC records indicate which member 
+(brokerage) firms are short or which have written and not yet covered XYZ Jan 45 
+calls. The OCC selects, at random, a member firm that is short at least one XYZ Jan 
+45 call, and it notifies the short firm that it has been assigned. That firm must then 
+deliver 100 shares of XYZ at $45 per share to the firm that exercised the option. The 
+assigned firm, in tum, selects one of its customers who is short the XYZ January 45 
+call. This selection for the assignment may be either: 
+1. at random, 
+2. on a first-in/first-out basis, or 
+3. on any other basis that is fair, equitable, and approved by the appropriate 
+exchange. 
+The selection of the customer who is short the XYZ January 45 completes the 
+exercise/assignment process. (If one is an option writer, he should obviously deter­
+mine exactly how his brokerage firm assigns its option contracts.) 
+HONORING THE ASSIGNMENT 
+The assigned customer must deliver the stock - he has no other choice. It is too late 
+to try buying the option back in the option market. He must, without fail, deliver 100 
+shares of XYZ stock at $45 per share. The assigned writer does, however, have a 
+choice as to how to fulfill the assignment. If he happens to be already long 100 shares 
+of XYZ in his account, he merely delivers that 100 shares as fulfillment of the assign­
+ment notice. Alternatively, he can go into the stock market and buy XYZ at the cur­
+rent market price - presumably something higher than $45 - and then deliver the 
+newly purchased stock as fulfillment. A third alternative is merely to notify his bro­
+kerage firm that he wishes to go short XYZ stock and to ask them to deliver the 100 
+shares of XYZ at 45 out of his short account. At times, borrowing stock to go short 
+may not be possible, so this third alternative is not always available on every stock. 
+Margin Requirements. If the assigned writer purchases stock to fulfill a 
+contract, reduced margin requirements generally apply to the transaction, so 
+that he would not have to fully margin the purchased stock merely for the pur­
+pose of delivery. Generally, the customer only has to pay a day-trade margin of