Options Assignment: What Every Trader Must Know

If you sell options, assignment is something you must understand. When someone exercises their option, a seller somewhere gets assigned. That seller must fulfill their obligation to buy or sell stock. Knowing how assignment works helps you manage risk and avoid surprises.

What is Options Assignment?

Assignment occurs when an option seller is required to fulfill their obligation because an option buyer exercised their contract. Assignment only happens to short option positions. If you are long options, you have the right to exercise but can never be assigned.

When assigned on a short call, you must sell 100 shares at the strike price. When assigned on a short put, you must buy 100 shares at the strike price. This happens regardless of the current market price.

How the Assignment Process Works

The assignment process involves several steps and parties.

Step 1: Exercise Decision

An option holder decides to exercise their contract. This typically happens when the option is in the money and the holder wants the stock position.

Step 2: OCC Random Selection

The Options Clearing Corporation (OCC) receives the exercise notice and randomly selects a broker with short positions in that option.

Step 3: Broker Assignment

Your broker receives the assignment notice and then assigns it to one of their customers who is short that option. Brokers use various methods - some random, some based on position size.

Step 4: Account Update

The assigned trader's account is updated. For call assignment, shares are removed and cash is credited. For put assignment, shares are added and cash is debited.

When Does Assignment Happen?

Understanding when assignment occurs helps you prepare.

At Expiration

The most common time for assignment is at expiration. Any option that is $0.01 or more in the money will typically be exercised, resulting in assignment for short sellers.

Early Assignment

American-style options can be exercised any time before expiration. Early assignment is more likely when:

• The option is deep in the money
• There is minimal time value remaining
• A dividend is approaching (for calls)
• Interest rates are high (for puts)

The Assignment Notification Timeline

Assignment notifications follow a specific timeline.

• Exercise date: Option holder submits exercise request
• Assignment date: You learn you have been assigned (typically next morning)
• Settlement date: Stock and cash settle (T+1)

You typically learn about assignment when you check your account the morning after the exercise occurred. The stock position appears (or disappears) from your account at that point.

Managing Assignment Risk

Several strategies help manage the risk of assignment.

Close Positions Before Expiration

The simplest approach is to buy back short options before expiration. This eliminates assignment risk entirely, though you pay for any remaining option value.

Roll the Position

If your short option is approaching the money, you can roll it to a later expiration or different strike. This closes your current position and opens a new one.

Monitor Deep ITM Options

Options that are significantly in the money with little time value are prime candidates for early assignment. Pay extra attention to these positions.

Watch for Dividends

Short calls on dividend-paying stocks face higher assignment risk the day before ex-dividend. It may be economically rational for call holders to exercise early to capture the dividend.

Financial Impact of Assignment

Assignment has immediate financial consequences you must be prepared for.

Capital Requirements

Put assignment requires cash to buy shares. A $50 put assignment needs $5,000 in buying power. Make sure your account can handle assignment before selling puts.

Margin Implications

The new stock position affects your margin. Long stock from put assignment uses buying power. Short stock from naked call assignment creates a margin position with associated requirements.

P&L Calculation

Your overall profit or loss depends on the premium received, strike price, and stock price at assignment. The premium collected always offsets your cost basis or sale price.

Assignment in Spread Positions

Assignment in spread positions can create unexpected outcomes.

If you have a vertical spread and only the short leg gets assigned, you end up with a stock position plus a long option. For example:

• You have a bull put spread: short $50 put, long $45 put
• The short $50 put is assigned
• You now own 100 shares plus a $45 put
• The $45 put now acts as protection on your new shares

This is not necessarily bad, but it changes your position and margin requirements. You may need to close the remaining long option to return to your intended exposure.

What to Do When Assigned

When you wake up to an assignment, follow these steps.

• Review your account: Understand the new position and its impact
• Check margin: Ensure you have adequate buying power
• Evaluate the position: Do you want to hold the stock or close it?
• Act if needed: Close the stock position or manage it as a new trade
• Handle any remaining options: If you had a spread, manage the long leg

Summary

Options assignment is a fundamental part of selling options. When you sell calls, you may be required to deliver stock. When you sell puts, you may be required to buy stock. Assignment most commonly occurs at expiration but can happen early, especially around dividends or when options are deep in the money. Managing assignment risk involves monitoring positions, having adequate capital, and closing or rolling positions when appropriate. Understanding assignment removes the fear and lets you sell options with confidence.

Learn more about assignment scenarios in our guides on early assignment risk and what happens when options expire.