Identifier: C4T1L5 | Revision: 2026-10-26 | Planned study: 10–15 minutes, excluding extended practice.

Decision and objectives

Choose whether the method addresses this lesson’s task before placing an order. Objectives: 1. Map an exercise to cash and securities obligations. 2. Distinguish European and American exercise. 3. Identify missing instructions before expiry.

Prerequisite: C4T1L4.

All numbers, quotes, contract terms and dates in the case are hypothetical teaching assumptions, not a listed series or offer. Unless varied below, options are European, expire together in 90 calendar days, are cash settled in TRY, and use 100 underlying units per contract. Premiums are TRY per underlying unit, paid at entry; signed quantities identify long (+) and short (−) legs. Assume no distributions and zero financing for the isolated payoff, no holiday adjustment, and final cash on the next business day. Actual tax is excluded, not assumed zero.

Mechanics

Exercise is the holder’s use of the contractual right. Assignment allocates the resulting obligation to a writer. Selling the option to close is a market transaction and can preserve remaining time value; exercising changes the claim into its settlement obligations. European exercise is restricted to expiry; American exercise may occur earlier within the contract’s rules. US assignment examples in the linked OIC material are comparative mechanics, not domestic operating instructions. Verify domestic instructions directly for the actual contract and account.

Price and return drivers

Physical call exercise exchanges strike cash for deliverable units; physical put exercise exchanges units for strike cash. Cash settlement pays an option difference determined by the official fixing. Economic net value can be similar, but peak cash and custody requirements are different. Automatic exercise must never be assumed across families. The checked Borsa single-stock specification explicitly describes physical delivery and no automatic exercise; its rules must be rechecked at publication. Actual contract deadlines take precedence over the hypothetical calendar.

Worked case

Change the standard case to a synthetic European physically delivered call: long 1 K100, premium 6, multiplier 100, total fees TRY 20, physical exchange two business days after exercise. At expiry S115, pay TRY 10000 and receive 100 shares valued at TRY 11500. Economic net profit at that valuation is 11500 − 10000 − 600 − 20 = TRY 880. A cash-settled comparison would pay only TRY 1500 and yield the same TRY 880 under identical fees, but would not leave shares. Neither comparison assumes a subsequent sale price.

Adverse case

At S80, S100 and S115, cash-settled call net results are −620, −620 and +880. If the holder lacks the TRY 10000 needed for physical exercise at S115 and misses the specified instruction cutoff, losing an otherwise valuable right can be the outcome under the synthetic nonautomatic terms. Before expiry, selling at a supplied bid 16 produces TRY 1600, or TRY 980 net after premium and charges; exercise at S115 would realize only intrinsic value 15 and forgo 1 per unit of sale value, before any delivery funding cost.

Practical use

The checked Borsa single-stock page describes European physical delivery and no automatic exercise. Obtain current instructions and account deadlines; the hypothetical two-business-day example is not a universal operational rule.

For any actual domestic implementation, verify the exact issue/contract, authorized intermediary, account permission and executable size. Include spread, commissions, passed-through fees, funding/borrow, custody and exercise/exit costs without double-counting embedded charges. Recheck income year, residency/status, issue/acquisition dates and effective tax law; all case results remain before actual tax.

Decision boundaries

Plan an action before the last trading and instruction cutoffs: close, exercise with funding, or intentionally lapse. A long physical put also needs deliverable shares; an unplanned exercise can create borrowing or delivery failures. Do not infer a guaranteed next-day sale from the expiry fixing. Decline carrying an exercise-sensitive position through expiry when operational evidence or available cash is incomplete. Reconcile notices, cash and resulting securities instead of assuming the option disappeared harmlessly.

Practice and references

Exercise: synthetic physical short put K90, quantity −2, multiplier 100, premium received 4 each, total fees TRY 30. Solution: Assignment requires TRY 18000 and delivers 200 shares. At S70 those shares are valued at TRY 14000; net economic loss = 14000 − 18000 + 800 − 30 = −3230. Premium income does not replace the strike cash obligation.

Takeaway: Exercise, sale and expiry have different cash and securities consequences; verify the actual instruction process before the cutoff. Reference links: product card, formula; glossary: Assignment; Exercise style; Physical delivery. Next: C4T2L1. Topic test.

Sources: Borsa Istanbul: Settlement Method (retrieved 2026-10-26; Settlement by contract family). Borsa Istanbul: Single Stock Options (retrieved 2026-10-26; Contract terms). Options Industry Council: Options Assignment (retrieved 2026-10-26; American-style assignment and partial assignment). GIB: Provisional Article67 Guide for Individuals (retrieved 2026-10-26; Sections1,3–9 and19; publication introduction). Revision 2026-10-26; recheck changing terms before publication.

Shared reference guide | Class examination