Exercise and assignment

The two sides of the right

An option gives its buyer a right, and its seller an obligation (see what is an option). Exercise is the buyer using that right: buying at the strike with a call, selling at the strike with a put. Assignment is the other side: a seller of that option is required to fulfil the obligation. In US listed options the clearing house (the OCC) assigns exercises to sellers by random allocation; on the crypto venues below there is no allocation, and every in-the-money short simply pays.

When exercise can happen depends on the style:

• European: only at expiry.
• American: at any time up to expiry. US stock and ETF options are American.

And what is delivered depends on settlement:

• Physical delivery: the shares (or coins) actually change hands at the strike.
• Cash settlement: only the difference is paid, the option's intrinsic value at the settlement price.

Crypto options: European and cash-settled

The BTC and ETH options on Deribit, OKX and Bybit are European and cash-settled. At 08:00 UTC on expiry day each venue fixes a settlement price from its index (on Deribit, an average over the last 30 minutes), and every in-the-money option is exercised automatically: the buyer receives its intrinsic value, the seller pays it. An out-of-the-money option expires worthless. Nobody needs to send an instruction, and the underlying is never delivered at the strike: the intrinsic value is paid in the settlement currency, the coin on Deribit and OKX, a stablecoin on Bybit. Venues also charge a small delivery fee on in-the-money options. The details are in settlement and delivery.

A worked example

You sold a $100,000 BTC call for $3,000 and bought a $110,000 call for $1,000: a bear call spread for a $2,000 credit. BTC settles at $104,000.

• The $100,000 call you sold is $4,000 in the money: it is exercised and you pay $4,000.
• The $110,000 call you bought is out of the money and expires worthless.
• Net: $2,000 − $4,000 = −$2,000, before fees.

With physically settled American options, the same position could have been assigned early, leaving you short 100 shares on the morning after, with the long call still open and the short stock to manage. In cash-settled European options, there is nothing to manage: the spread settles in cash at once.

Early exercise and dividends

Most options books are written for US stock options, so they spend time on early assignment. Its classic trigger is a dividend: just before a stock goes ex-dividend, the holder of a deep in-the-money call may exercise early to collect the dividend, and the seller is assigned. A covered call writer can lose the shares; a spread trader can find one leg gone and the other naked. Deep in-the-money puts can be exercised early too, when interest on the strike outweighs the remaining time value.

None of this applies here. European options can't be exercised before expiry, and a coin pays no dividend. A seller's risk before expiry is a mark-to-market loss and, if it grows, a margin call or liquidation, not assignment. Selling a short put doesn't mean being obliged to buy coins at the strike: at expiry you pay the put's intrinsic value in the settlement currency.