Assignment
When an option you sold is exercised against you
What Is Assignment?
Assignment occurs when the holder of an option exercises their right, obliging the seller of that option to meet the contract’s obligations. When you sell a call option, you commit to delivering 100 shares of the underlying stock at the strike price if it is exercised. When you sell a put option, you commit to buying 100 shares at the strike price if it is exercised. Assignment is not optional: if the holder chooses to exercise, you must comply. Many novice traders do not fully understand this risk when they sell options, which can lead to unpleasant surprises.
When Assignment Happens
Assignment happens as soon as the option holder decides to exercise their right. By far the most common case is at expiration, when in-the-money options are exercised automatically. For American options, assignment can occur at any time, though it is most likely near expiration or just before dividend dates for calls. For European options, assignment can only occur on the expiration date. Most brokers automatically exercise in-the-money options at expiration, which means that if you hold a deep in-the-money short call, assignment is close to certain. Spreads complicate assignment, because you can be assigned on one leg and not the other.
The Assignment Process and Mechanics
When assignment occurs, the process is largely automatic and handled by the clearing house. If you sold a call and are assigned, 100 shares are taken from your account and sold at the strike price. If you sold a put and are assigned, 100 shares are bought into your account at the strike price. This process typically happens overnight after expiration. You will receive a notification from your broker telling you that you have been assigned. The mechanics are completely automatic: it is simply the execution of the right the holder bought. In a spread, you can be assigned on one leg while the hedging leg expires worthless, which leaves the account exposed for a few hours.
Managing Assignment Risk
Experienced traders use several strategies to manage assignment risk. One is to close positions before expiration to avoid the risk entirely. Another is to keep enough capital in the account to handle assignment — particularly important for put sellers, who must be ready to buy shares. Some traders roll the position to a later expiration rather than letting assignment happen. Understanding when assignment is likely is critical: deep in-the-money options carry a high probability of assignment, while out-of-the-money options are rarely assigned. In spreads, it is important to close the whole position, or to make sure you keep the hedge in place across every leg.
Special Cases: Dividends and Corporate Events
Dividends create special assignment scenarios for call options. Just before the ex-dividend date, holders of in-the-money calls may exercise early in order to receive the dividend payment. That means if you sell a call on a stock about to pay a significant dividend, assignment risk is much higher. Similarly, other corporate events such as stock splits or mergers can affect assignment risk. Sophisticated traders constantly adjust their positions around these events. For option sellers, knowing the dividend calendar is essential to predicting when early assignment is likely and managing the risk accordingly.