Assignment
When option seller must fulfill obligation
What is Assignment?
Assignment Assignment is the process by which the seller of an option is required to fulfill the contract's obligation when the buyer exercises. For a sold (short) put, assignment means buying 100 shares per contract at the strike price. For a sold (short) call, assignment means selling 100 shares per contract at the strike price. Assignment occurs in two scenarios: 1. **At expiration**: any ITM short option is automatically exercised against the seller. ATM options may or may not be auto-exercised depending on broker rules (typically auto-exercised if more than $0.01 ITM). 2. **Before expiration (early assignment)**: the option buyer chooses to exercise early. Common for short calls before ex-dividend dates; rare for short puts. The OCC (Options Clearing Corporation) randomly assigns short positions across all option sellers when an exercise occurs. There's no way to predict in advance which seller will be assigned on a given day — assignment risk is symmetric across all open short interest. Assignment implications by strategy: - **Cash-secured put (CSP)**: assignment = take delivery of 100 shares at the strike. The premium received reduces effective cost basis. CSPs on stocks you want to own treat assignment as a feature, not a failure. - **Covered call**: assignment = sell 100 shares at the strike. Premium plus stock appreciation up to strike is captured; upside above strike is forfeited. - **Naked short call**: assignment = sell 100 shares short you don't own. Triggers a stock-borrow requirement and unlimited upside risk until repurchased. - **Iron condor / credit spread**: assignment of the short leg without the long leg expiring creates a directional exposure. Usually managed by closing the position before expiration to avoid this scenario. To prevent unwanted assignment: - Close short options that are ITM with 1-3 DTE remaining. - Roll positions out and away from the spot if approaching the short strike. - Avoid carrying short calls through ex-dividend dates on dividend-paying stocks. - Set broker alerts for ITM short positions inside 7 DTE. In US markets, assignment notifications typically arrive the morning after exercise (T+1). For overnight gap scenarios, the assignment can result in unexpected stock positions that require immediate management — particularly painful for short calls during overnight rallies. Assignment is the structural risk that distinguishes options selling from options buying. Buyers can never be assigned (they hold the right, not the obligation). Sellers always carry assignment risk in exchange for the premium collected. Sized appropriately, assignment is manageable; sized improperly, it can wipe out small accounts.
Complete Definition
Assignment is the process by which the seller of an option is required to fulfill the contract's obligation when the buyer exercises. For a sold (short) put, assignment means buying 100 shares per contract at the strike price. For a sold (short) call, assignment means selling 100 shares per contract at the strike price. Assignment occurs in two scenarios: 1. **At expiration**: any ITM short option is automatically exercised against the seller. ATM options may or may not be auto-exercised depending on broker rules (typically auto-exercised if more than $0.01 ITM). 2. **Before expiration (early assignment)**: the option buyer chooses to exercise early. Common for short calls before ex-dividend dates; rare for short puts. The OCC (Options Clearing Corporation) randomly assigns short positions across all option sellers when an exercise occurs. There's no way to predict in advance which seller will be assigned on a given day — assignment risk is symmetric across all open short interest. Assignment implications by strategy: - **Cash-secured put (CSP)**: assignment = take delivery of 100 shares at the strike. The premium received reduces effective cost basis. CSPs on stocks you want to own treat assignment as a feature, not a failure. - **Covered call**: assignment = sell 100 shares at the strike. Premium plus stock appreciation up to strike is captured; upside above strike is forfeited. - **Naked short call**: assignment = sell 100 shares short you don't own. Triggers a stock-borrow requirement and unlimited upside risk until repurchased. - **Iron condor / credit spread**: assignment of the short leg without the long leg expiring creates a directional exposure. Usually managed by closing the position before expiration to avoid this scenario. To prevent unwanted assignment: - Close short options that are ITM with 1-3 DTE remaining. - Roll positions out and away from the spot if approaching the short strike. - Avoid carrying short calls through ex-dividend dates on dividend-paying stocks. - Set broker alerts for ITM short positions inside 7 DTE. In US markets, assignment notifications typically arrive the morning after exercise (T+1). For overnight gap scenarios, the assignment can result in unexpected stock positions that require immediate management — particularly painful for short calls during overnight rallies. Assignment is the structural risk that distinguishes options selling from options buying. Buyers can never be assigned (they hold the right, not the obligation). Sellers always carry assignment risk in exchange for the premium collected. Sized appropriately, assignment is manageable; sized improperly, it can wipe out small accounts.
Example
Trader sells 1 AAPL $185 put expiring Friday for $1.50 credit. AAPL closes Friday at $182. The put is $3 ITM and is auto-exercised. Monday morning, trader receives 100 shares of AAPL at cost basis $185 (less $1.50 premium = $183.50 effective). $18,350 of cash is debited from the account.
Related Terms
Frequently Asked Questions
What is assignment in options trading?
Assignment is when the seller of an option is required to fulfill the contract when the buyer exercises. For a short put, assignment means buying 100 shares at the strike. For a short call, assignment means selling 100 shares at the strike. Assignment is the structural obligation that distinguishes options selling from buying.
Can I be assigned before expiration?
Yes — this is called early assignment. Common scenarios: short calls before ex-dividend dates (the call buyer exercises to capture the dividend), and deep ITM short options near expiration. Most short positions are not assigned early; closing before the threat materializes is the standard mitigation.
How does assignment work mechanically?
The OCC randomly selects sellers when an option is exercised. You're notified by your broker the morning after exercise (T+1). For a short put, $strike × 100 is debited and 100 shares are credited. For a short call, 100 shares are debited and $strike × 100 is credited. You can sell the assigned shares immediately if you prefer not to hold.
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