Exercise Settlement Date
Categories: Derivatives, Metrics, Trading
ESD refers to the date when an option is converted into a stock or share. It's also the date when a trade officially goes through.
It's important to keep this date in mind because the date when you buy a stock and the date it is officially in your hot little hands can be different. In some cases, you officially own your stock a day after a transaction, and in other cases, it can take up to three business days.
If you're getting dividends for your stock, the slight difference in dates can make a big difference.
Example
You buy an option to buy 100 shares of a new social media startup called mylifesucks.com at $5 a share. The stock goes up to $10 a share and you decide to buy on October 3. On October 6, you get word that the stocks are officially yours. Awesome.
One little detail: the cut-off date for dividend payouts was October 4. That means you don't get the dividend cash because you didn't officially own the stock until October 6. That does suck.