Options Assignment & Exercise Guide

What is Options Assignment?

Options assignment is one of those topics that strikes fear into new options traders, but it's actually a straightforward concept once you understand the mechanics. Assignment occurs when you, as an option seller (writer), are required to fulfill your obligation because the option buyer has exercised their right.

Here's the simple version: When you sell an option, you're making a promise. If you sell a call, you promise to sell 100 shares at the strike price if requested. If you sell a put, you promise to buy 100 shares at the strike price if requested. Assignment is when the buyer says "I'm requesting it" and you must deliver.

Key Point: Only option sellers can be assigned. If you only buy options, you'll never be assigned—you control when and if to exercise. Assignment is the flip side: someone else is exercising, and you're on the hook to fulfill the obligation.

When Does Assignment Happen?

Assignment typically occurs in three scenarios:

1. Automatic Assignment at Expiration (Most Common)

If your short option expires in-the-money by even $0.01, it will be automatically exercised by the Options Clearing Corporation (OCC). This is the most common form of assignment and happens every Friday after market close.

Example: You sold a SPY 450 call. At expiration, SPY closes at $450.10. Your option is $0.10 ITM, so it gets automatically exercised. You wake up Monday morning and discover you're now short 100 shares of SPY at $450, and the buyer owns those shares.

2. Early Assignment (Less Common)

American-style options (most equity options) can be exercised any time before expiration. Early assignment typically happens when:

• An option is deep in-the-money with little time value remaining
• A stock is about to pay a dividend (calls get assigned to capture the dividend)
• Interest rate arbitrage opportunities exist (rare)

3. Pin Risk Assignment (Tricky)

When a stock closes very close to your short strike at expiration (within a few cents), you might or might not be assigned. The option holder has until 5:30pm ET Saturday to decide whether to exercise. This creates uncertainty—you won't know if you own stock until Monday morning.

The Mechanics of Assignment

Understanding what actually happens during assignment helps demystify the process:

Call Assignment Process

If you're assigned on a short call:

1. Your brokerage removes the short call from your account
2. You're now short 100 shares at the strike price
3. Your account receives cash equal to Strike Price × 100
4. If you don't own the shares (naked call), you're now short stock

Example: Short 1 AAPL 180 call, AAPL is at $185
After assignment: You're short 100 AAPL at $180, and have $18,000 in your account. You're losing $5 per share ($500 total) because AAPL is at $185 but you're short from $180.

Put Assignment Process

If you're assigned on a short put:

1. Your brokerage removes the short put from your account
2. You're now long 100 shares at the strike price
3. Your account is debited Strike Price × 100
4. You now own 100 shares whether you wanted them or not

Example: Short 1 TSLA 200 put, TSLA drops to $190
After assignment: You own 100 TSLA at $200, and your account is debited $20,000. You're down $10 per share ($1,000 total) because TSLA is at $190 but you bought at $200.

How to Avoid Unwanted Assignment

Most traders prefer to close positions rather than be assigned. Here's how to avoid assignment:

1. Close Positions Before Expiration

The simplest method: buy back your short options before expiration Friday. Most professional traders close positions with 7-10 days remaining to avoid assignment risk and gamma exposure.

Rule of thumb: If your short option is ITM with less than a week to expiration, close it or roll it. Don't let it expire ITM if you want to avoid assignment.

2. Roll Positions

Rolling means closing your current position and opening a new one at a later expiration or different strike. This extends your trade and avoids assignment.

Example: You're short the 50 put expiring Friday, stock is at $49. Buy back the Friday 50 put, sell the next week's 50 put. You've rolled forward, avoiding assignment.

3. Monitor Ex-Dividend Dates

If you're short calls and the stock goes ex-dividend tomorrow, expect early assignment on ITM calls. Call holders will exercise to capture the dividend. Close these positions 1-2 days before ex-dividend to avoid assignment.

4. Use Spreads Instead of Naked Options

Vertical spreads have defined risk and rarely result in problematic assignments. If you're assigned on your short leg, you can exercise your long leg to offset. This is much safer than naked options.

What to Do If You're Assigned

Don't panic. Assignment is a normal part of options trading. Here's what to do:

If Assigned on a Short Call

You're now short 100 shares. Your options:

• Buy back the shares immediately: Close the short position at market open Monday
• Hold the short position: Only if you're bearish and willing to manage the risk
• If it was a covered call: Your shares are gone, you keep the premium. This is expected and fine.

If Assigned on a Short Put

You now own 100 shares. Your options:

• Sell the shares immediately: If you don't want to own the stock
• Hold the shares: If you're bullish or were wheel trading (intended to own)
• Sell covered calls: If you're keeping the shares, start selling calls to generate income (the Wheel Strategy)

Assignment Costs and Fees

Assignment isn't free. Be aware of these costs:

• Assignment fee: Most brokers charge $5-15 per assignment
• Exercise fee: If you exercise your long leg to offset, another $5-15
• Stock commission: If you need to close the stock position, potential commission
• Margin interest: If assigned over the weekend, you might pay interest on borrowed funds

These costs add up. This is why professional traders close positions instead of letting them expire ITM.

Common Assignment Mistakes

Key Takeaways