SIE (Training Consultants v3.5, 2025): Ch. 3 Equity Options, Sec. 8 – Options Administration

When can an American-style option be exercised?

Any time after purchase.

When can a European-style option be exercised?

Only at expiration.

What is a class of options?

All options of the same type on the same stock.

What is a series of options?

Options in the same class with same expiration month and strike price.

What are the three option cycles?

JAJO, FMAN, MJSD.

Who sets option premiums?

Market supply and demand, not the OCC.

Are options adjusted for cash dividends?

No.

How does a stock split affect an option?

Strike price adjusted; number of contracts or shares adjusted proportionally.

Who gets a dividend if a call is exercised before ex-date?

The call buyer.

Who gets a dividend if a put is exercised before ex-date?

The assigned put writer.

What is the settlement time for customer-to-clearing member trades?

Next business day (T+1).

How is assignment determined from OCC to clearing members?

Random basis.

How is assignment determined from clearing members to clients?

Random, FIFO, or exchange-approved method.

Can a registered representative sell calls against a corporation’s own stock as an opening transaction?

No.

American Style Option

Can be exercised any time after purchase.

European Style Option

Can only be exercised at expiration.

Class of Options

All options of the same type (call or put) on the same underlying stock.

Series of Option

All options of the same class with the same expiration month and same strike price.

Option Cycles

Patterns of months in which option contracts expire. Three cycles:
• JAJO = Jan, Apr, July, Oct
• FMAN = Feb, May, Aug, Nov
• MJSD = Mar, June, Sept, Dec

Standardized Terms by OCC

Strike prices, option expiration months, size, and type of contracts. Premiums are NOT standardized; set by market supply/demand.

Exercise / Strike Prices

Determined by the underlying stock price on exchanges; not by OCC.

Option Contract Term Adjustments

Adjustments when underlying stock shares change (stock splits, stock dividends, rights distributions). Not adjusted for cash dividends.

Stock Split Adjustment Example

2:1 split → strike price halved, number of contracts doubled.

Stock Dividend Adjustment Example

50% stock dividend → option shares increase 50%; strike price adjusted proportionally.

Ex-Dividend Rule (Options)

• Call exercised before ex-date → buyer receives dividend.
• Put exercised before ex-date → assigned writer receives dividend.

Option Settlement:
• Customer ↔ Clearing Member: T+1
• Clearing Member ↔ OCC: T+1
• Exercise: 1 business day from OCC receiving exercise notice.

Assignment of Exercise Notice:
• OCC → Clearing Member: Random Basis
• Clearing Member → Client: Random, FIFO, or approved method.

Prohibited Transactions

A registered representative cannot sell calls against a corporation’s own stock as an opening transaction.