Options Assignment
Quick Definition
The process by which an option seller is obligated to fulfill the terms of the contract when the buyer exercises their right.
What Is Options Assignment?
Options assignment occurs when an option buyer exercises their right and the corresponding obligation is assigned to an option seller (writer). For call assignments, the seller must deliver 100 shares at the strike price; for put assignments, the seller must buy 100 shares at the strike price. Assignment is random among all short positions at that strike and expiration. American-style options can be assigned at any time, though early assignment is most common for deep ITM options, especially calls before ex-dividend dates and puts when time value is minimal. At expiration, the OCC automatically exercises options that are $0.01 or more in the money. Option sellers should always be prepared for assignment and maintain sufficient capital or shares. Assignment risk is a key consideration in multi-leg strategies where partial assignment can create unintended positions.
Options Assignment Example
- 1A covered call seller at $50 strike is assigned when the stock is at $55 — they must sell their 100 shares at $50, missing the additional $5 upside
- 2A trader is short a $90 put on a stock that drops to $70 and is assigned — they must buy 100 shares at $90, immediately showing a $2,000 unrealized loss
Related Terms
Early Exercise
The act of exercising an American-style option before its expiration date, typically done only when specific conditions make it financially advantageous.
American Option
An option contract that can be exercised at any time before or on the expiration date, providing maximum flexibility to the holder.
Covered Call
An options strategy where an investor sells call options against shares they already own, generating income from the premium while capping upside potential.
Cash-Secured Put
An options strategy where a trader sells a put option while holding enough cash to purchase the underlying stock if assigned.
Naked Option
An option sold without holding the underlying asset or an offsetting position, exposing the seller to theoretically unlimited risk.
Call Option
A contract giving the holder the right, but not the obligation, to buy an underlying asset at a specified price within a specified time period.
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