What Happens When an Option is Exercised?

  When you exercise an option, a request is sent to your options trading broker that sets off a whole chain of events leading to the eventual resolution of an options contract that will cease to exist after that. When the exercise request is received by your options broker, that request to exercise an option is sent to the Options Clearing Corporation or OCC in the form of an "Exercise Notice". The Options Clearing Corporation is the entity responsible for ensuring that all options contracts are successfully settled when exercised and is the biggest clearing organization in the world for financial derivative instruments. Once the exercise notice is received by the OCC, the OCC will randomly select a member firm that is short on that same options contract being exercised for assignment. The selected firm then fulfills the terms of the options contract by delivering the underlying stock if it is a call option being exercised or by paying for the underlying stock if it is a put option that is being exercised. After that, the selected firm selects one or more of its account holders who are short on that same options contract for assignment. The delivery of the stocks or the paying for the stocks by the firm would come from these selected assignees. Every broker or firm would have their own procedure for selecting accounts for assignment but the most commonly used method is random selection. This whole complex process takes place all within just a few minutes with the net result reflected in your account.

  Fig. 1 Process When You Exercise An Option

9.6 Render the passage in English using the English equivalents of the italicized phrases given in Russian. Express the main idea of the passage in one sentence.

Варранты и Свопы

Некоторые компании выпускают (issue) варранты, которые подобно (like) опционам, дают право, а не обязательство, купить акции в будущем по определенной (particular) цене, возможно (probably) более высокой, чем текущая рыночная цена. Варранты обычно выпускаются вместе с (along with) облигациями, но они могут быть отделены (can be detached) от облигаций и продаваться отдельно (traded separately). В отличие от (unlike) опционов колл, которые длятся (last) три, шесть или девять месяцев, варранты имееют большие сроки истечения (long maturities of) до десяти лет.

Свопы – это договоренности (arrangements) между институтами обменяться процентными ставками или валютами (доллары на йены). На пример, компания, которая взяла вдолг деньги, выпустив векселя с плавающей процентной ставкой (by issuing floating-rate notes) могла бы защитить себя от повышения (protect itself from a rise in) процентных ставок, договорившись с банком (by arranging with a bank) обменять (to swap) свои платежи с плавающей ставкой на платежи с фиксированной ставкой, если банк ожидает, что процентные ставки упадут (expects interest rates to fall).