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• In-the-money American-style calls and puts automatically exercise/assign and physical delivery of the underlying asset takes place.

• For in-the-money European-style options (like index options), it’s just a simple cash transfer, no underlying asset is involved.

Liquidity risk in options refers to the risk of being unable to enter or exit an options trade without materially affecting the price. 

When an option hits its strike price, it’s considered at-the-money. For long options, as long as it hasn’t expired, nothing happens automatically. However, short positions risk being assigned if they move past at-the-money and become in-the-money.