So is it possible that there are long contracts that are exercised but no correspondng short contracts to make or take delivery since the person that was short covered? For example, on expiration Friday, all those short contracts cover, and all those long exercise. But, since all the short contracts covered they can't be assigned, so who makes delivery?
Do these traders want to own the stock which is currently trading above strike, or sell it immediately to capture a gain? If they want to sell it immediately, when exactly would they do that? The following trading day at the open? That seems too risky. I think I read that most options are exercised by the market makers. Option traders would typically sell a call at a profit before expiration and not bother with exercise. Thanks, Kent
For every contract, there are two sides - long and short - as you put it. When they cover, the shorts buy contracts. If they aren't buying from the longs, then there are still the same number of short contracts - sold when the original shorts covered. So, the seller(s) to the original shorts make delivery.
If an option has any combination of intrinsic and/or time premium, the obvious thing to do is to just sell it to close. The only reason to exercise a long contract would be to obtain a position in the underlying (long or short). If you're on the short side, pin risk should always be a concern.