# What price is used when you exercise an option mid-trading-day?

Question says it all, if I exercise an option mid day, is the closing price used to fill the order? In other words, exercise does not lock the price, correct?

• why the down votes? Nov 12, 2016 at 22:07
• When you exercise an American call you pay the amount K and you receive the stock. That's it, that's all there is to Exercising. If you wish you can (simultaneously or later, or never, it is up to you ) sell the stock and receive $S_t$ where $t$ is the time you decide to sell. Then you will have made $S_t-K$. Nov 12, 2016 at 23:56
• your answer assumes the granularity of my question is days. the granularity of my question is minutes. if a stock price is at $10 at 10:45 am, and i exercise my option at 10:45, and at 4:30 the price is at$10.50 and at midnight, during after hours trading, the stock price is at $9.50, which price is used to execute the contract? the key part of my question "mid-trading-day." Nov 13, 2016 at 13:36 • I don't see why @Alex C's answer depends on daily intervals. When you exercise an American equity option you pay$K$and get physical delivery of the stock. The current stock price is irrelevant. Phrased differently - no matter when you exercise during the day (as long as it is before the cutoff time), you trigger the same transactions. Nov 13, 2016 at 14:04 • In the USA, individual stock options are American and exercised via delivery of the stock (with no consideration of its price at some time t). CBOE index options are exercised via cash settlement (no delivery) with reference to the official exchange closing index price BUT THESE OPTIONS ARE EUROPEAN EXERCISE, the exercise takes place at the moment of expiration. Nov 13, 2016 at 15:04 ## 2 Answers It sounds like you want to know the specifics of assignment once an equity option is exercised, and this is really a 'check with your broker' question. Your broker will have a cut-off time to exercise a contact. If you exercise during that day the security will settle on your account after the normal stock settlement period - i.e. as if you had purchased the security on market, something like T+2 (not to be confused with options settlement which is generally T+1). So, it doesn't matter when on a day you exercise, the security will still settle on your account on the same morning. Most brokers will allow you to sell some or all of the assigned stock before the settlement date and lock in a return (e.g. at the same time as you exercise the call option, you sell an equal quantity of the underlying security on-market). This will generally mean you don't need to provide funding on the settlement date. You can reverse the above logic for a put option. Your question is about a situation that never occurs. In the USA, individual stock options are American and exercised via delivery of the stock (with no consideration of its price at some time t). When you exercise an American call you pay the amount K and you receive the stock. That's it, that's all there is to Exercising. If you wish you can (simultaneously or later, or never, it is up to you) sell the stock and receive$S_t$where t is the time you decide to sell, say 10:45am on the 12th of December. Then you will have made$S_t-K$. Cash settled options are a different kettle of fish. CBOE index options are exercised via cash settlement (no delivery) with reference to the official exchange closing index price BUT THESE OPTIONS ARE EUROPEAN EXERCISE, the exercise takes place at the moment of expiration, according to the formula$(S_t-K)^+$using the same official settlement price$S_t\$ for everyone.

In summary then, it is a design issue. If the exchange wants to create an American option they must provide some tradeable instrument (stock, future) which will be physically delivered. If they wish to create a European option they can have physical delivery or cash settlement with respect to an officially determined closing (or sometimes opening) price. There are no other ways to do things AFAIK.

• I realize my question is poorly worded, thanks for your patience. Suppose I sell a put. Someone who owns a put, clicks "exercise" at 10:30am. What happens next, at what time? Does someone get the stock in their account at 10:31? At midnight? What I'm really trying to understand is what is overnight and time risk with a variety of combo positions such as shorting the underlying and buying an OTM put. I have control over when the I open or close the underlying, but it's not clear what kind of time control I have over the exercise of the option. Nov 13, 2016 at 20:56