Chapter 34: Futures and Futures Options 673 
Actual delivery of the security to satisfy an assignment notice must occur with­
in the country of origin. That is, the seller of the currency must make arrangements 
to deliver the currency in its country of origin. On exercise or assignment, sellers of 
currency would be put holders who exercise or call writers who are assigned. Thus, 
if one were short Swiss franc calls and he were assigned, he would have to deliver 
Swiss francs into a bank in Switzerland. This essentially means that there have to be 
agreements between your firm or your broker and foreign banks if you expect to 
exercise or be assigned. The actual payment for the exercise or assignment takes 
place between the broker and the Options Clearing Corporation (OCC) in U.S. dol­
lars. The OCC then can receive or deliver the currency in its country of origin, since 
OCC has arrangements with banks in each country. 
EXERCISE AND ASSIGNMENT 
The currency options that trade on the PHLX (Philadelphia Exchange) have exercise 
privileges similar to those for all other options that we have studied: They can be 
exercised at any time during their life. 
Even though PHLX currency options are "cash" options in the most literal 
sense of the word, they do not expose the writer to the same risks of early assignment 
that cash-based index options do. 
Example: Suppose that a currency trader has established the following spread on the 
PHLX: long Swiss franc December 50 puts, short Swiss franc December 52 puts - a 
bullish spread. As in any one-to-one spread, there is limited risk. However, the dol­
lar rallies and the Swiss franc falls, pushing the exchange rate down to 48 cents (U.S.) 
per Swiss franc. Now the puts that were wri,tten - the December 52 contracts - are 
deeply in-the-money and might be subject to early assignment, as would any deeply 
in-the-money put if it were trading at a discount. 
Suppose the trader learns that he has indeed been assigned on his short puts. 
He still has a hedge, for he is long the December 50 puts and he is now long Swiss 
francs. This is still a hedged position, and he still has the same limited risk as he did 
when he started (plus possibly some costs involved in taking physical delivery of the 
francs). This situation is essentially the same as that of a spreader in stock or futures 
options, who would still be hedged after an assignment because he would have 
acquired the stock or future. Contrast this to the cash-based index option, in which 
there is no longer a hedge after an assignment.