Assignment

Assignment occurs when the holder of a long option exercises their right, obligating the short option seller to fulfill the contract terms. For a short call, assignment means you must sell 100 shares at the strike price. For a short put, assignment means you must buy 100 shares at the strike price.

Assignment is the primary obligation risk of selling options.

When assignment happens:

• At expiration if the option is ITM (automatic exercise by most brokers)
• Early assignment before expiration (American-style options only), rare but possible

Early assignment triggers:

• Short calls on stocks paying an upcoming dividend (call holder exercises to capture the dividend)
• Short puts that are deep ITM with almost no extrinsic value remaining

How to avoid unwanted assignment: Close short options positions that are ITM before expiration. Most brokers will warn you, but the responsibility is yours. Don't hold short ITM options into the close on expiration Friday.

Assignment isn't always bad: For cash-secured put sellers, assignment simply means you're buying the stock at the price you chose, with an effective discount from the premium collected. The wheel strategy is built on this: sell puts, get assigned stock, sell covered calls against it.

Example: You sold a $175 put on AAPL. AAPL drops to $168 at expiration. You're assigned, required to buy 100 shares at $175 for $17,500 total, even though the stock is worth $16,800. Your effective cost basis is $175 − premium collected.

Related terms: Exercise, cash-secured put, covered call, expiration date, pin risk, the wheel

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