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What is Options Assignment & How to Avoid It

If you are learning about options, assignment might seem like a scary topic. In this article, you will learn why it really isn’t. I will break down the entire options assignment process step by step and show you when you might be assigned, how to minimize the risk of being assigned, and what to do if you are assigned.

Video Breakdown of Options Assignment

Check out the following video in which I explain everything you need to know about assignment:

What is Assignment?

To understand assignment, we must first remember what options allow you to do. So let’s start with a brief recap:

A call option gives its buyer the right to buy 100 shares of the underlying at the strike price
A put option gives its buyer the right to sell 100 shares of the underlying at the strike price

In other words, call options allow you to call away shares of the underlying from someone else, whereas a put option allows you to put shares in someone else’s account. Hence the name call and put option.

The assignment process is the selection of the other party of this transaction. So the person that has to buy from or sell to the option buyer that exercised their option.

Note that an option buyer has the right to exercise their option. It is not an obligation and therefore, a buyer of an option can never be assigned. Only option sellers can ever be get assigned since they agree to fulfill this obligation when they sell an option.

Let’s go through a specific example to clarify this:

The underlying security is stock ABC and it is trading at $100.
Peter decides to buy 1 put option with a strike price of 95 as a hedge for his long stock position in ABC
Kate sells this exact same option at the same time.

Over the next few weeks, ABC’s price goes down to $90 and Peter decides to exercise his put option. This means that he uses his right to sell 100 shares of ABC for $95 per share. Now Kate is assigned these 100 shares of ABC which means she is obligated to buy them for $95 per share.

Peter now has 100 fewer shares of ABC in his portfolio, whereas Kate has 100 more.

This process is analog for a call option with the only difference being that Kate would be short 100 shares and Peter would have 100 additional shares of ABC in his portfolio.

Hopefully, this example clarifies what assignment is.

Who Can Be Assigned?

To answer this question, we must first ask ourselves who exercises their option? To do this, let’s quickly look at the different ways that you can close a long option position:

Sell the option: Selling an option is probably the easiest way to close a long option position. Doing this will have no effect on the option seller.
Let the option expire: If the option is Out of The Money , it would expire worthless and there would be no consequence for the option seller. If, on the other hand, the option is In The Money by more than $0.01, it would typically be automatically exercised . This would start the options assignment process.
Exercise the option early: The last possibility would be to exercise the option before its expiration date. This, however, can only be done if the option is an American-style option. This would, once again, lead to an option assignment.

So as an option seller, you only have to worry about the last two possibilities in which the buyer’s option is exercised.

But before you worry too much, here is a quick fact about the distribution of these 3 alternatives:

Less than 10% of all options are exercised.

This means 90% of all options are either sold prior to the expiration date or expire worthless. So always remember this statistic before breaking your head over the risk of being assigned.

It is very easy to avoid the first case of being assigned. To avoid it, just close your short option positions before they expire (ITM). For the second case, however, things aren’t as straight forward.

Who Risks being Assigned Early?

Firstly, you have to be trading American-style options. European-style options can only be exercised on their expiration date. But most equity options are American-style anyway. So unless you are trading index options or other kinds of European-style options, this will be the case for you.

Secondly, you need to be an options seller. Option buyers can’t be assigned.

These two are necessary conditions for you to be assigned. Everyone who fulfills both of these conditions risks getting assigned early. The size of this risk, however, varies depending on your position. Here are a few things that can dramatically increase your assignment risk:

ITM: If your option is ITM, the chance of being assigned is much higher than if it isn’t. From the standpoint of an option buyer, it does not make sense to exercise an option that isn’t ITM because this would lead to a loss. Nevertheless, it is possible. The deeper ITM the option is, the higher the assignment risk becomes.
Dividends : Besides that, selling options on securities with upcoming dividends also increases your risk of assignment. More specifically, if the extrinsic value of an ITM call option is less than the amount of the dividend, option buyers can achieve a profit by exercising their option before the ex-dividend date.
Extrinsic Value: Otherwise, keep an eye on the extrinsic value of your option. If the option has extrinsic value left, it doesn’t make sense for the option buyer to exercise their option because they would achieve a higher profit if they just sold the option and then bought or sold shares of the underlying asset. Typically, the less time an option has left, the lower its extrinsic value becomes. Implied volatility is another factor that influences extrinsic value.
Puts vs Calls: This is more of an interesting side note than actual advice, but put options tend to get exercised more often than call options. This makes sense since put options give their buyer the right to sell the underlying asset and can, therefore, be a very useful hedge for long stock positions.

How can you Minimize Assignment Risk?

Since you now know what assignment is, and who risks being assigned, let’s shift our focus on how to minimize the assignment risk. Even though it isn’t possible to completely remove the risk of being assigned, there are things that you can do to dramatically decrease the chances of being assigned.

The first thing would be to avoid selling options on securities with upcoming dividend payments. Before putting on a position, simply check if the underlying security has any upcoming dividend payments. If so, look for a different trade.

If you ever are in the position that you are short an option and the ex-dividend of the underlying security is right around the corner, compare the size of the dividend to the extrinsic value of your option. If the extrinsic value is less than the dividend amount, you really should consider closing the position. Otherwise, the chances of being assigned are high. This is especially bad since being short during a dividend payment of a security will force you to pay the dividend.

Besides avoiding dividends, you should also close your option positions early. The less time an option has left, the lower its extrinsic value becomes and the more it makes sense for option buyers to exercise their options. Therefore, it is good practice to close your (ITM) short option positions at least one week before the expiration date.

The deeper an option is ITM, the higher the chances of assignment become. So the just-mentioned rule is even more important for deep ITM options.

If you don’t want to indefinitely close your position, it is also possible to roll it out to a later expiration cycle. This will give you more time and add extrinsic value to your position.

FAQs about Assignment

Last but not least, I want to answer some frequently asked questions about options exercise and assignment.

1. What happens if your account does not have enough buying power to cover the assigned position?

This is a common worry for beginning options traders. But don’t worry, if you don’t have enough capital to cover the new position, you will receive a margin call and usually, your broker will just automatically close the assigned shares immediately. This might lead to a minor assignment fee, but otherwise, it won’t significantly affect your account. Tatsyworks, for example, charges an assignment fee of only $5.

Check out my review of tastyworks

2. How does assignment affect your P&L?

When an option is exercised, the option holder gains the difference between the strike price and the price of the underlying asset. If the option is ITM, this is exactly the intrinsic value of the option. This means that the option holder loses the extrinsic value when he exercises his/her option. That’s also why it doesn’t make sense to exercise options with a lot of extrinsic value left.

This means that as soon as the option is exercised, it is only the intrinsic value that is relevant for the payoff. This is the same payoff as the option at its expiration date.

So as an options seller, your P&L isn’t negatively affected by an assignment. Either it stays the same or it becomes slightly better due to the extrinsic value being ignored.

As an example, if your option is ITM by $1, you will lose up to $100 per option or $1 per share that you are assigned. But this does not account for the extrinsic value that falls away with the exercise of the option. So this would be the same P&L as at expiration. Depending on how much premium you collected when selling the option, this might still be a profit or a minor loss.

With that being said, as soon as you are assigned, you will have some carrying risk. If you don’t or can’t close the position immediately, you will be exposed to the ongoing price fluctuations of that security. Sometimes, you might not be able to close the new position immediately because of trading halts, or because the market is closed.

If you weren’t planning on holding that security, it is a good idea to close the new position as soon as possible.

Option spreads such as vertical spreads, add protection to these price fluctuations since you can just exercise the long option to close the assigned share position at the strike price of the long option.

3. When an option holder exercises their option, how is the assignment partner chosen?

This is usually a random process. As soon as an option is exercised, the responsible brokerage firm sends a request to the Options Clearing Corporation (OCC). They send back the requested shares, whereafter they randomly choose another brokerage firm that currently has a client that is short the exercised option. Then the chosen broker has to decide which of their clients is assigned. This choice is, once again, random or a time-based priority system is used.

4. How does assignment work for index options?

As there aren’t any shares of indexes, you can’t directly be assigned any shares of the underlying asset. Therefore, index options are cash-settled. This means that instead of having to buy or sell shares of the underlying, you simply have to pay the difference between the strike price and the underlying trading price. This makes assignment easier and a lot less likely among index options.

Note that ETF options such as SPY options are not cash-settled. SPY is a normal security with openly traded shares, so exercise and assignment work just like they do among equity options.

I hope this article made you realize that assignment isn’t as bad as it might seem at first. It is just important to understand how the options assignment process works and what affects the likelihood of being assigned.

To recap, here’s what you should to do when you are assigned:

if you have enough capital in your account to cover the position, you could either treat the new position as a normal (stock) position and hold on to it or you could close it immediately. If you don’t have a clear trading plan for the new position, I recommend the latter.

If, on the other hand, you don’t have enough buying power, you will receive a margin call from your broker and the position should be closed automatically.

Assignment does not have any significant impact on your P&L, but it comes with some carrying risk. Options spreads can offer more protection against this than naked option positions.

To mitigate assignment risk, you should close option positions early, always keep an eye on the extrinsic value of your option positions, and avoid upcoming dividend securities.

And always remember, less than 10% of options are exercised, so assignment really doesn’t happen that often, especially not if you are actively trying to avoid it.

For the specifics of how assignment is handled, it is a good idea to contact your broker, as the procedures can vary from broker to broker.

Thank you for taking the time and reading this post. If you have any questions, comments, or feedback, please let me know in the comment section below.

22 Replies to “What is Options Assignment & How to Avoid It”

hi there well seems like finally there is one good honest place. seem like you are puting on the table the whole truth about bad positions. however my wuestion is when can one know where to put that line of limit. when do you recognise or understand that you are in a bad position? thanks and once again, a great site.

Well If you are trading a risk defined strategy the point would be at max loss and not too much time left until expiration. For undefined risk strategies however it can be very different. I would just say if you don’t have too much time until expiration and are far from making money you should use some common sense and admit that you are wrong.

What would happen in the event of a crash. Would brokers be assigning, options, cashing out these shares, and making others bankrupt. Well, I guessed I sort of answered my own question. Its not easy to understand, especially not knowing when this would come up. But seems like you hit the important aspects of the agreement.

Actually I wouldn’t imagine that too many people would want to exercise their options in case of a market ctash, because they probably wouldn’t want to hold stocks in this risky and volatile environment.

And to the part of the questions: making others bankrupt. This really depends on the situation. You can’t get assigned more stock than your option covers. This means as long as you trade with reasonable position sizing nothing too bad can happen. Otherwise I would recommend to trade with defined risk strategies so your maximum drawdown is capped.

Thanks for writing about assignment Louis. After reading the section how assignment works, I feel I am somewhat unclear about how assignment works when the exerciser exercises Put or Call option. In both cases, if the underlying is an index, is the settlement done through the margin account money? Would you be able to provide a little more detail of how exercising the option (Put vs Call) would work in case of an underlying stock vs Index.

Thank you very much in advance

Thanks for the question. Indexes can’t be traded in the same way as stocks can. That’s why index options are settled in cash. If your index option is assigned, you won’t have to buy or sell any shares of the underlying index at the strike price because there exist no shares of indexes. Instead, you have to pay the amount that your index option is ITM to the exerciser of your option. Let me give you an example: You are short a call option with the strike price of 1000. The underlying asset is an index and it’s price is 1050. This means your call option is 50 points ITM. If someone exercises your long call option, you will have to pay him/her the difference between the strike price and the underlying’s price which would be 50 (1050-1000). So the main difference between index and stock options is that you don’t have to buy/sell any shares of the underlying asset for index options. I hope this helps. Please let me know if you have any other questions or comments.

Can the same logic be applied for ETFs as it does Indexes? For example, if I trade the SPY ETF, would it be settled in cash?

Thanks! Johnson

Hi Johnson, Exercise and assignment for ETFs such as SPY work just like they do for equities. ETFs have shares that are openly traded, whereas indexes don’t. That’s why indexes are settled in cash, whereas ETFs aren’t. I hope this helps.

There are many articles online that I read that are biased against options tradings and I am a bit surprised to read a really helpful article like this. I find this helpful in understanding options trading, what are the techniques and how to manage the risks. Before, I was hesitant to try this financial game but now, after reading this article, I am considering participating with live accounts and no longer with a demo account. A few months ago, I signed up with a company called IQ Options, but really never involved real money and practiced only with a demo account.

Thanks for your comment. I am glad to see that you liked the post. However, I don’t recommend sing IQ Option to trade since they are a very shady trading firm. You could check out my Review of IQ Option for all the details.

this is a great and amazing article. i sincerely your effort creating time to write on such an informative article which has taught me a lot more on what is options assignment and avoiding it. i just started trading but had no ideas on this as a beginner. i find this article very helpful because it has given me more understanding on options trading and knowing the techniques and how to manage the risks. thanks for sharing this amazing article

You are very welcome

Hello, the first thing that i noticed when i opened this page is the beauty of the website. i am sure you have put much effort into creating this article and the details are really clear here. after watching the video break down, i fully understood the entire process on how to avoid options assignment.

Thank you so much for the positive feedback!

I would love to create a website like yours as the design used is really nice, simple and brings about clarity of the write ups, but then you wrote a brilliant article on how to avoid options assignment. great video here. it was confusing at first. i will suggest another video be added to help some people like me.

Thanks for the feedback. I recommend checking out my options trading beginner course . In it, I cover all the basics that weren’t explained here.

Thanks for your very helpful article. I am contemplating selling a call that would cover half my shares on company X. How can ensure that the assignment process selects the shares that I bought at a higher price, so as to maximize capital losses?

Hi Luis, When you are assigned, you just automatically buy/sell shares of the underlying at the strike price. This means your overall portfolio is adjusted by these 100 shares. The exact shares and your entry price are irrelevant. If you have 50 shares of X and your short call is assigned, you will sell 100 shares of X at the strike price. After this, your position would be -50 shares of X which would be equivalent to being short 50 shares of X. I hope this helps.

Louis, I entered a CALL butterfly spread at $100 below where I intended, just 2 days before expiration date. I intended to speculate on a big earning announcement jump the next day. It was a debit of 1.25. Also, when I realized my mistake, I tried to close it for anything at all. The Mark fluctuated between 40 and 70, but I could not get it to close. So now I am assigned to sell 200 share at 70 dollars below the market price of the stock. I am having a heart attack. I do not have the 200 shares to deliver, so it seems I have to buy them at the market, and sell them for $70 less, for a loss of $14,000.

What other options are open to me? Can my trading firm force a close with a friendly market maker and make it as if it happened on Friday? I am willing to pay a friendly market maker several hundred dollars to make this trade. Is that an option? Other options the trading firm can do for me that would cost me less than $14,000?

Hi Paul, Thanks for your comment. From the limited information provided, it is hard to say what is actually going on. If you bought a call butterfly spread, your max loss should be limited to the premium you paid to open the position. An assignment shouldn’t have a huge impact on your overall P&L. I highly recommend contacting your broker and explaining your situation to them since they have all the information required to evaluate what’s actually going on. But if the loss is real, there is no way for you to make a deal with a market maker to limit or undo potential losses. I hope this helps.

What happens with ITM long call option that typically gets automatically exercised at expiration, if the owner of the call option doesn’t have the cash/margin to cover the stock purchase?

He would receive a margin call

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Option Assignment: What It Is, How to Avoid It, and Examples

January 3, 2023
Options and Derivatives

Options assignment is a must-know concept for anyone trading options, especially those selling them. It’s the process by which an option seller can be held to their contract terms — and it has risks.

We’ll go over what you need to know about the mechanics of assignment, why it occurs, and your exposure when selling options.

What is option assignment?

When an option holder decides to exercise their option, they’ll first need to notify their broker. This will trigger a notification of assignment to the writer (seller) of said option and force them to fulfill their side of the trade – be it buying or selling the underlying asset at whatever price is agreed upon.

For instance, let’s say that Dave holds a call option on XYZ stock with a strike price of $50. With XYZ currently trading at $55 a share, Dave decides to exercise his option – meaning he wants to exercise his right to buy 100 shares at $50.

The broker would then randomly assign an option seller – who would then be obligated to sell XYZ stock to Dave at the agreed-upon price of $50 a share.

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Reasons for assignment

At expiration, traders still holding short, in-the-money options often receive an unpleasant surprise – being forced to fulfill the terms of their contract. If you had a short put option, your assignment would mean buying stock – if a call option, you’ll be selling shares.

Though it’s not common, early assignment on options trades is still a possibility. Specifically for illiquid contracts that have wide bid/ask spreads or those with upcoming dividend payments – so best to keep an eye out!

Expiration: Most likely reason for an assignment. Any short, in-the-money options are nearly guaranteed to be assigned. Most brokers will automatically exercise their customers’ options even if they are just a penny in-the-money.
Wide spread: For an option holder, exercising early isn’t usually a preferred course of action. However, in certain cases—such as when the bid/ask spread is too wide due to illiquidity—they may have no choice but to exercise if they want to get any value out of their contract.
Dividend risk: Short, in-the-money (ITM) call options are at risk of being assigned early if the underlying stock pays a dividend. This risk is greatest when the dividend amount is higher than the extrinsic value left in the contract.

How to avoid option assignment

If you’re the writer (seller) of an option, a guaranteed way to avoid assignment is by closing out the option contract. If you no longer hold it, there’s no risk someone will assign it to you.

Another way to avoid assignment is by rolling your option. This means you would close out the current contract and open a new one at an expiry further in time or with a strike further out-of-the-money. It could take some practice, but it’s worth understanding if you want more control over how your options are managed!

OTM expiration: Out-of-the-money options will expire worthless upon expiration. An option holder has up to 90 minutes after market close to exercise – so it’s best to close the option prior to the bell to avoid any surprise assignments.
Rolling: Rolling an option is the process of closing your current position while simultaneously opening a new one. If the option is about to expire, you would be buying back the current option while simultaneously selling a new one further out in time. You could also choose to move it to a new strike and improve the probabilities.
Exit the trade: One surefire way you can avoid getting assigned is by closing your option. That’ll make it impossible for anyone to assign a contract to you!

Does option assignment count as a day trade?

In general, a day trade is defined as the opening and closing of a security on the same trading day. However, the exercise or assignment of an option contract does not count as a day trade.

What is dividend risk ?

Dividend risk is only a consideration for short, in-the-money call options on an underlying which pays dividends . It’s most likely to occur on the ex-dividend date for the stock on options with less extrinsic value left than the dividend being paid.

Most traders would find the extrinsic value left in the call option by using the value of the corresponding put. In the example below, let’s assume the stock goes ex-dividend tomorrow and pays a 26-cent dividend.

If we had sold the 18-strike call, using the put we can quickly see it has roughly 7 cents of extrinsic value. Since the dividend is higher than the extrinsic value, this option is at high risk of being assigned early.

Any in-the-money call option that has less extrinsic value than the amount of the dividend, may be at risk of early assignment. This could be avoided by exiting the option prior to the ex-dividend date, or by rolling the option to an expiration or strike less likely to be assigned.

Options assignment is a potential risk of options writing. In many situations, it can be avoided but needs to be fully understood to manage effectively.

By understanding the basics of options assignment, why it happens, and ways to avoid it; you can rest easy knowing that you’re prepared for anything. So next time option assignment comes knocking, you’ll be ready!

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Options Assignment: Navigating the Rights and Obligations

By Tyler Corvin

Ever been blindsided by an unexpected traffic ticket in the mail?

You knew driving came with its set of potential consequences, yet you took to the road regardless. Suddenly, you’re left with a tangible obligation to pay. This unforeseen shift, where what was once a mere possibility becomes an immediate reality, captures the spirit of options assignment within the vast realm of options trading.

Diving into the details, option assignment serves as the bridge between the abstract realm of rights and the concrete world of duties in this field. It’s that unassuming piece in the machinery that can, without warning, change the entire game – often carrying notable financial repercussions. In a domain where every move has implications, truly grasping option assignment is foundational, ensuring not just survival but genuine success.

Join us in this comprehensive exploration of option assignment, arming traders of all experience levels with the knowledge to sail these intricate seas with assuredness and accuracy.

What you’ll learn

What is Options Assignment?

How options assignment works, identifying option assignment , examples of option assignment, managing and mitigating assignment risks, what option assignment means for individual traders.

Conclusion

Dive into the realm of options trading and you’ll find a tapestry of processes and potential. “Options assignment” is one pivotal cog in this intricate machine. To a newcomer, this term might seem a tad daunting. But a step-by-step walk-through can demystify its core.

In its simplest form, options assignment means carrying out the rights specified in an option contract. Holding an option allows a trader the choice to buy or sell a particular asset, but there’s no compulsion. The moment they opt to use this right, that’s when options assignment kicks in.

Think of it this way: You’ve got a ticket (option) to a show (buy or sell an asset). You decide if and when to attend. When you make the move, that transition is the options assignment.

There are two main types of option assignments:

Call Option Assignment : Triggered when a call option holder exercises their right. The seller of the option then steps into the spotlight, bound to sell the asset at the agreed-upon price.
Put Option Assignment : Conversely, if a put option holder steps forward, the seller of the put takes the stage. Their role? To buy the asset at the specified rate.

To truly grasp options assignment, one must understand the dance between rights and obligations in options trading.

When a trader buys an option, they’re essentially reserving a right, a possible move. On the other hand, selling an option translates to accepting a duty if the option’s holder chooses to play their card.

Rights with Call Options: Buying a call option grants you a special privilege. You can procure the underlying asset at a set price before the option expires. If you choose to exercise this right, the one who sold you the call gets assigned. Their task? Handing over the asset at that set price.

Obligations with Put Options: Securing a put option empowers you to sell the underlying at a pre-decided rate. Should you exercise this, the put’s seller steps up, committed to buying the asset at the given rate.

Several factors steer the course of options assignment, including intrinsic value, looming expiration dates, and current market vibes. To stay ahead of these influences, many traders utilize option trade alerts for timely insights. And remember, while many options might find buyers, not all see execution. Hence, not every seller will get assigned. For traders, understanding this rhythm is vital, shaping many strategies in options trading.

In the multifaceted world of options trading, discerning option assignment straddles the line between art and science. While no technique guarantees surefire results, several pointers and signals can wave a flag, hinting at an impending assignment.

In-the-Money Options : A robust sign of a looming assignment is the option’s stance relative to its strike price. “In-the-money” refers to an option’s moneyness , and plays a pivotal role in the behavior of option holders. Deeply in-the-money (ITM) options amplify the odds of assignment. An ITM call option, where the market price of the asset towers above the strike price, encourages the holder to exercise and swiftly offload the asset on the market. Conversely, an ITM put option, where the market price trails significantly behind the strike price, incentivizes the holder to scoop up the asset in the market and then exercise the option to vend it at the loftier strike price.

Expiration’s Shadow: The ticking clock of an expiring option raises the assignment stakes, especially if it remains ITM. Many traders make their move just before the eleventh hour to capitalize on their gains.

Dividend Dates in Focus: Call options inching toward expiry ahead of a dividend date, especially if they’re ITM, stand at an elevated assignment crosshair. Option aficionados might play their call options to pocket the dividend, which they’d bag if they possess the core shares.

Extrinsic Value’s Decline : A diminishing time or extrinsic value of an option elevates its exercise odds. When intrinsic value dominates an option’s worth, a holder might be inclined to cash in on this value.

Volume & Open Interest Dynamics : A sudden surge in trading or a dip in open interest can be telltale signs. Understanding volume’s role is crucial as such fluctuations might hint at traders either hopping in or out, suggesting possible exercises and assignments.

Navigating the Post-Assignment Terrain

Grasping the ripple effects of option assignment is vital, highlighting the immediate responsibilities and potential paths for both the buyer and seller.

For the Option Seller:

Call Option Assignment : For a trader who’s sold a call option, assignment means they’re on the hook to hand over the underlying shares at the strike price. If they’re short on shares, a market purchase is in order—potentially at a loss if market prices overshoot the strike.
Put Option Assignment: Assignment on a peddled put option necessitates the trader to buy the shares at the strike price . If this price overshadows the market rate, losses loom.

For the Option Buyer:

Call Option Play : Exercising a call lets the buyer snap up shares at the strike price. They can either nestle with them or trade them off.
Put Option Play: Exercising a put gives the buyer the reins to sell their shares at the strike price. This play often pays off when the market rate is dwarfed by the strike, ensuring a tidy profit on the dispensed shares.

Post-assignment, all involved must be on their toes, knowing what triggers margin calls , especially if caught off-guard by the assignment. Tax implications may also hover, influenced by the trade’s nature and the tenure of the position.

Being savvy about these subtleties and gearing up for possible turns of events can drastically refine one’s journey through the options trading maze.

Call Option Assignment Scenario

Imagine an investor purchases an Nvidia ( NVDA ) call option at a strike price of $435, hoping that the price of the stock will ascend after finding out that they may be forced to move out of some countries . The option is set to expire in a month. Soon after, not only did NVDA rebound from the news, but they reported very strong quarterly earnings, propelling the stock to $455.

Spotting the favorable trend, the investor opts to wield their right to purchase the stock at the agreed strike price of $435, despite its $455 market value. This initiates the option assignment.

The other investor, having sold the option, must now part with their NVDA shares at $435 apiece. If they’re short on stocks, they’d have to fetch them at the going rate of $455 and let them go at a deficit. The first investor, however, stands at a crossroads: retain the shares in hopes of further gains or swiftly trade them at $455, reaping a neat sum.

Put Option Assignment Scenario

Let’s visualize an investor who speculates a dip in the share price of V.F. Corporation ( VFC ) after seeing news about an activist investor causing shares to jump almost 14% in a day . To hedge their bets, they secures a put option from another investor at a strike price of $18.50, set to lapse in a month.

Fast forward a week, let’s say VFC divulges lackluster quarterly figures, causing the stock to dive to $10. The first investor, seizing the moment, employs their put option, electing to sell their shares at the $18.50 strike price.

When the assignment bell tolls, the other investor finds himself bound to buy the shares from the first investor at the agreed $18.50, a rate that overshadows the current $10 market value. The first investor thus sidesteps the market slump, securing a favorable sale. The other investor, however, absorbs a loss, acquiring stocks at a premium to their market worth.

The realm of options trading is akin to navigating a dynamic river, demanding a sharp comprehension of the risks that lie beneath its surface. A predominant risk that traders often encounter is assignment risk. When one assumes the role of an option seller, they inherit the duty to honor the contract if the buyer opts to exercise. Grasping the gravity of this can make the difference, underscoring the necessity of adept risk management.

A savvy approach to temper assignment risk is by keeping a vigilant eye on the extrinsic value of options. Generally, options rich in extrinsic value tend to resist early assignment. This resistance emerges as the extrinsic value dwindles when the option dives deeper in-the-money, thereby tempting the holder to exercise.

Furthermore, economic currents, ranging from niche corporate updates to sweeping market tides, can be triggers for option assignments. Staying attuned to these economic ripples equips traders with the vision needed to either tweak or maintain their positions. For example, traders may opt to sidestep selling options that are deeply in-the-money, given their higher susceptibility to assignments due to their shrinking extrinsic value.

Incorporating spread tactics, like vertical spreads or iron condors, furnishes an added shield. These strategies can dampen the risk of assignment since one part of the spread frequently balances the risk of its counterpart. Should the specter of a short option assignment hover, traders might contemplate ‘rolling out’ their stance. This move entails repurchasing the short option and subsequently selling another, possibly at a varied strike rate or a more distant expiry.

Yet, despite these protective layers, it remains pivotal for traders to brace for possible assignments. Maintaining ample liquidity, be it in capital or necessary shares, can avert unfavorable scenarios like hasty liquidations or stiff margin charges. Engaging regularly with brokers can also shed light, occasionally offering a heads-up on looming assignments.

In conclusion, the bedrock of risk management in options trading is rooted in perpetual learning. As traders hone their craft, their adeptness at forecasting and navigating assignment risks sharpens.

In the intricate world of options trading, option assignments aren’t just nuanced details; they’re pivotal moments with deep-seated implications for individual traders and the health of their portfolios. Beyond the immediate financial aftermath, assignments can reshape trading plans, risk dynamics, and the overarching path of an investor’s journey.

At its core, option assignments can transform a trader’s asset landscape. Consider a trader who’s short on a call option. If they’re assigned, they might be compelled to supply the underlying stock. This can result in a rapid stock outflow from their portfolio or, if they don’t possess the stock, birth a short stock stance. On the flip side, a trader short on a put option who faces assignment may find themselves buying the stock at the strike price, thereby dipping into their cash reserves.

These immediate shifts can generate broader portfolio ripples. An unexpected gain or shedding of stocks can jostle a trader’s asset distribution, veering it off their envisioned path. If, for instance, a trader had charted a particular stock-to-cash distribution or a meticulous diversification blueprint, an option assignment might throw a spanner in the works.

Additionally, assignments can serve as a real-world litmus test for a trader’s risk-handling prowess . A surprise assignment might spark margin calls for those not sufficiently fortified with capital. It stands as a poignant nudge about the essence of ensuring liquidity and safeguarding against the unpredictable whims of the market.

Strategically speaking, recurrent assignments might signal it’s time for traders to recalibrate. Are the options they’re offloading too submerged in-the-money? Have they factored in pivotal market shifts that might heighten early exercise odds? Such reflective moments can pave the way for refining and elevating trading methods.

In the multifaceted world of options trading, option assignment stands out as both a potential boon and a challenge. Far from being a simple checkbox in the process, its ramifications can mold the contours of a trader’s portfolio and steer long-term tactics. The importance of comprehending and adeptly managing option assignment resonates, whether you’re dipping your toes into options for the first time or weaving through intricate trades with seasoned expertise.

Furthermore, mastering options trading is about integrating its myriad concepts into a cohesive playbook. Whether it’s differentiating trading strategies like the iron condor from the iron butterfly strategy or delving deep into the nuances of option assignments, each component enriches the narrative of a trader’s odyssey. As markets shift and new hurdles arise, a solid grasp of foundational principles remains an invaluable asset. In this perpetual dance of learning and evolution, may your trading maneuvers always be well-informed, proactive, and adept.

Understanding Options Assignment: FAQs

What factors influence the likelihood of an option being assigned.

Several factors come into play, including the option’s intrinsic value , the time remaining until expiration, and upcoming dividend announcements. Options that are deep in the money or nearing their expiration date are more likely to be assigned.

Are Some Option Styles More Prone to Assignment than Others?

Absolutely. When considering different option styles , it’s essential to note that American-style options can be exercised at any point before their expiration, which means they face a higher risk of early assignment. In contrast, European-style options can only be exercised at expiration.

How Do Current Market Trends Impact Assignment Risk?

Factors like market volatility, notable price shifts, and external economic happenings can amplify the chances of an option being assigned. For example, an option might be assigned before a company’s ex-dividend date if the expected dividend outweighs the weakening of theta decay .

Can Traders Reverse or Counter the Effects of an Option Assignment?

Once an option has been assigned, it’s set in stone. However, traders can maneuver within the market to balance out the implications of the assignment, such as procuring or selling the underlying asset.

Are There Any Fees Tied to Option Assignments?

Indeed, brokers usually impose a fee for both assignments and exercises. The specific fee can differ depending on the broker, making it essential for traders to understand their brokerage’s charging scheme.

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How Option Assignment Works: Understanding Options Assignment

A breakdown of options assignment for active traders.

Options assignment is a process in options trading that involves fulfilling the obligations of an options contract.

It occurs when the buyer of an options contract exercises their right to buy or sell the underlying asset. The seller (writer) of the options contract must deliver or receive the underlying asset at the agreed-upon price (strike price).

What is Options Assignment?

Options assignment can happen when the owner of an option exercises their right to buy or sell shares of stock or when options expire in the money (ITM). This process can be complex and involves various factors such as the type of option, expiration date, and market conditions.

There are two main styles of options contracts: American-style and European-style. American-style options allow the buyer of a contract to exercise at any time during the life of the contract. In contrast, European-style options can only be exercised on the expiration date.

Traders selling American-style options are at risk of assignment anytime on or before the expiration date. While they can technically be assigned anytime, the option must be ITM for the owner of the contract to benefit from exercising their right.

On the other hand, many options traders prefer to sell European-style options as it is impossible to be assigned before the expiration date, giving them more flexibility to hold their contract without worrying about being assigned early.

Who is at Risk of Assignment in Options Trading?

Traders with short options positions are at risk of assignment because they have sold the option and are obligated to deliver or receive the underlying asset. If the owner of the options contract decides to exercise their rights, the seller of the options contract must fulfill their obligations.

Traders with long options positions are not at risk of assignment as they are in control of exercising their options. A long option holder has the right, but not the obligation, to buy or sell the underlying asset at the strike price. If the long option holder decides not to exercise their options, they can let the options contract expire worthless.

What is the Risk of Assignment?

The risks associated with options assignment are primarily centered around the obligations of the seller of the options contract. If the holder of the options contract decides to exercise their right to buy or sell the underlying asset, the seller must fulfill their obligations.

For example, if a trader sold a put option with a $100 strike price, and the stock dropped to $90, they would still have to buy the stock at $100 per share. When an option is ITM, it generally indicates that the seller of the option is in an unfavorable spot.

Of course, if you sold a $100 strike put option when the stock was trading at $120, and now it is trading at $90, the seller is likely regretting their original trade. However, it is impossible always to time the market perfectly, and assignment risk is the risk option sellers must assume.

Traders must be aware of market conditions that could increase the risk of assignment, such as large price movements in the underlying asset. Option selling strategies benefit from a stable market environment, so you must ensure the stock you are trading will remain stable until the expiration date. Events that may cause significant market volatility, such as earnings, are crucial to be aware of when selling options.

How to Avoid Option Assignment

While it may not be possible to avoid options assignment completely, there are several strategies that options traders can use to reduce the likelihood of being assigned.

One strategy is to manage short options positions by closing the position if your strike gets tested. For example, if you sold a $100 strike put when a stock is trading at $120 per share, you can avoid assignment by closing the position before the stock drops under your strike price of $100.

Another strategy is to roll over your option, which means you close it out and simultaneously sell a new contract with a different strike price and/or date. Traders can roll their contracts to the same strike price at a further date or even roll it down or up to ensure their contract stays out of the money (OTM).

These strategies may not always be effective in avoiding assignment. Traders should always be prepared to fulfill their obligations if they are assigned and have a plan to manage their positions accordingly. If a stock moves hard overnight, there is no guarantee you will successfully avoid assignment.

Do You Keep the Premium if You Get Assigned?

Yes, if you get assigned on a short options position, you still keep the premium you received initially. However, it is important to note that if you are assigned, you will also be obligated to fulfill the contract terms by buying or selling the underlying asset at the strike price. This means you may incur additional costs associated with fulfilling your obligation, such as purchasing the underlying asset at an unfavorable price.

What Happens When Your Covered Call Gets Assigned?

If a covered call gets assigned, the seller of the call option must sell the underlying stock at the strike price to the buyer of the call option. The seller will still be able to keep the premium received from the sale of the call option.

For example, if you own a stock at $100 per share and sell a $130 strike call option, you will be forced to sell if the stock is above $130 on the expiration date. Additionally, you can be assigned before the expiration date if the stock is trading above your strike price.

While the covered call seller will still generate a profit from this trade, the downside is you are likely missing out on more upside potential had you not sold the covered call. The seller of the covered call doesn’t have to do anything, as the broker will take care of the assignment for you.

Are Options Automatically Assigned?

If you are an option seller, your option will either be exercised by the buyer or automatically assigned if it is ITM on the expiration date.

If you are an option buyer, your option will not be automatically assigned before expiration. However, most brokers will automatically assign ITM options on the expiration date.

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101.0% GAIN on Apollo Global Management calls 103.6% GAIN on JP Morgan Chase calls 105.3% GAIN on DraftKings calls 101.3% GAIN on Airbnb calls 203.0% GAIN on Shopify calls 102.0% GAIN on Cboe Global Markets calls 100.9% GAIN on Boeing calls 102.1% GAIN on Microsoft puts 102.3% GAIN on First Solar calls 101.5% GAIN on PulteGroup calls 101.0% GAIN on Apple calls 209.4% GAIN on NXP Semiconductors calls 100.8% GAIN on Uber Technologies calls 100.4% GAIN on Academy Sports and Outdoors puts 102.2% GAIN on Trade Desk calls 100.8% GAIN on DoorDash calls 100.0% GAIN on Camping World Holdings puts 100.0% GAIN on Cboe Global Markets calls 100.2% GAIN on C3.ai calls 238.5% GAIN on Oracle calls

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Understanding assignment risk in Level 3 and 4 options strategies

E*TRADE from Morgan Stanley

With all options strategies that contain a short option position, an investor or trader needs to keep in mind the consequences of having that option assigned , either at expiration or early (i.e., prior to expiration). Remember that, in principle, with American-style options a short position can be assigned to you at any time. On this page, we’ll run through the results and possible responses for various scenarios where a trader may be left with a short position following an assignment.

Before we look at specifics, here’s an important note about risk related to out-of-the-money options: Normally, you would not receive an assignment on an option that expires out of the money. However, even if a short position appears to be out of the money, it might still be assigned to you if the stock were to move against you just prior to expiration or in extended aftermarket or weekend trading hours. The only way to eliminate this risk is to buy-to-close the short option.

Short (naked) calls

Credit call spreads

Credit put spreads, debit call spreads, debit put spreads.

When all legs are in-the-money or all are out-of-the-money at expiration

Another important note : In any case where you close out an options position, the standard contract fee (commission) will be charged unless the trade qualifies for the E*TRADE Dime Buyback Program . There is no contract fee or commission when an option is assigned to you.

Short (naked) call

If you experience an early assignment.

An early assignment is most likely to happen if the call option is deep in the money and the stock’s ex-dividend date is close to the option expiration date.

If your account does not hold the shares needed to cover the obligation, an early assignment would create a short stock position in your account. This may incur borrowing fees and make you responsible for any dividend payments.

Also note that if you hold a short call on a stock that has a dividend payment coming in the near future, you may be responsible for paying the dividend even if you close the position before it expires.

An early assignment generally happens when the put option is deep in the money and the underlying stock does not have an ex-dividend date between the current time and the expiration of the option.

Short call + long call

(The same principles apply to both two-leg and four-leg strategies)

This would leave your account short the shares you’ve been assigned, but the risk of the position would not change . The long call still functions to cover the short share position. Typically, you would buy shares to cover the short and simultaneously sell the long leg of the spread.

Pay attention to short in-the-money call legs on the day prior to the stock’s ex-dividend date, because an assignment that evening would put you in a short stock position where you are responsible for paying the dividend. If there’s a risk of early assignment, consider closing the spread.

Short put + long put

Early assignment would leave your account long the shares you’ve been assigned. If your account does not have enough buying power to purchase the shares when they are assigned, this may create a Fed call in your account.

However, the long put still functions to cover the position because it gives you the right to sell shares at the long put strike price. Typically, you would sell the shares in the market and close out the long put simultaneously.

Here's a call example

Let’s say that you’re short a 100 call and long a 110 call on XYZ stock; both legs are in-the-money.
You receive an assignment notification on your short 100 call, meaning you sell 100 shares of XYZ stock at 100. Now, you have $10,000 in short stock proceeds, your account is short 100 shares of stock, and you still hold the long 110 call.
Exercise your long 110 call, which would cover the short stock position in your account.
Or, buy 100 shares of XYZ stock (to cover your short stock position) and sell to close the long 110 call.

Here's a put example:

Let’s say that you’re short a 105 put and long a 95 put on XYZ stock; the short leg is in-the-money.
You receive an assignment notification on your short 105 put, meaning you buy 100 shares of XYZ stock at 105. Now, your account has been debited $10,500 for the stock purchase, you hold 100 shares of stock, and you still hold the long 95 put.
The debit in your account may be subject to margin charges or even a Fed call, but your risk profile has not changed.
You can sell to close 100 shares of stock and sell to close the long 95 put.

Long call + short call

Debit spreads have the same early assignment risk as credit spreads only if the short leg is in-the-money.

An early assignment would leave your account short the shares you’ve been assigned, but the risk of the position would not change . The long call still functions to cover the short share position. Typically, you would buy shares to cover the short share position and simultaneously sell the remaining long leg of the spread.

Long put + short put

An early assignment would leave your account long the shares you’ve been assigned. If your account does not have enough buying power to purchase the shares when they are assigned, this may create a Fed call in your account.

All spreads that have a short leg

(when all legs are in-the-money or all are out-of-the-money)

Pay attention to short in-the-money call legs on the day prior to the stock’s ex-dividend date because an assignment that evening would put you in a short stock position where you are responsible for paying the dividend. If there’s a risk of early assignment, consider closing the spread.

However, the long put still functions to cover the long stock position because it gives you the right to sell shares at the long put strike price. Typically, you would sell the shares in the market and close out the long put simultaneously.

Options Exercise, Assignment, and More: A Beginner's Guide

So your trading account has gotten options approval, and you recently made that first trade—say, a long call in XYZ with a strike price of $105. Then expiration day approaches and, at the time, XYZ is trading at $105.30.

Wait. The stock's above the strike. Is that in the money 1 (ITM) or out of the money 2 (OTM)? Do I need to do something? Do I have enough money in my account? Help!

Don't be that trader. The time to learn the mechanics of options expiration is before you make your first trade.

Here's a guide to help you navigate options exercise 3 and assignment 4 —along with a few other basics.

In the money or out of the money?

The buyer ("owner") of an option has the right, but not the obligation, to exercise the option on or before expiration. A call option 5 gives the owner the right to buy the underlying security; a put option 6 gives the owner the right to sell the underlying security.

Conversely, when you sell an option, you may be assigned—at any time regardless of the ITM amount—if the option owner chooses to exercise. The option seller has no control over assignment and no certainty as to when it could happen. Once the assignment notice is delivered, it's too late to close the position and the option seller must fulfill the terms of the options contract:

A long call exercise results in buying the underlying stock at the strike price.
A short call assignment results in selling the underlying stock at the strike price.
A long put exercise results in selling the underlying stock at the strike price.
A short put assignment results in buying the underlying stock at the strike price.

An option will likely be exercised if it's in the option owner's best interest to do so, meaning it's optimal to take or to close a position in the underlying security at the strike price rather than at the current market price. After the market close on expiration day, ITM options may be automatically exercised, whereas OTM options are not and typically expire worthless (often referred to as being "abandoned"). The table below spells it out.

If the underlying stock price is...
...higher than the strike price
...lower than the strike price
If the underlying stock price is... A long call is... -->
...higher than the strike price ...ITM and typically exercised -->
...lower than the strike price ...OTM and typically abandoned -->
If the underlying stock price is... A short call is... -->
...higher than the strike price ...ITM and typically assigned -->
If the underlying stock price is... A long put is... -->
...higher than the strike price ...OTM and typically abandoned -->
...lower than the strike price ...ITM and typically exercised -->
If the underlying stock price is... A short put is... -->
...lower than the strike price ...ITM and typically assigned -->

The guidelines in the table assume a position is held all the way through expiration. Of course, you typically don't need to do that. And in many cases, the usual strategy is to close out a position ahead of the expiration date. We'll revisit the close-or-hold decision in the next section and look at ways to do that. But assuming you do carry the options position until the end, there are a few things you need to consider:

Know your specs . Each standard equity options contract controls 100 shares of the underlying stock. That's pretty straightforward. Non-standard options may have different deliverables. Non-standard options can represent a different number of shares, shares of more than one company stock, or underlying shares and cash. Other products—such as index options or options on futures—have different contract specs.
Stock and options positions will match and close . Suppose you're long 300 shares of XYZ and short one ITM call that's assigned. Because the call is deliverable into 100 shares, you'll be left with 200 shares of XYZ if the option is assigned, plus the cash from selling 100 shares at the strike price.
It's automatic, for the most part . If an option is ITM by as little as $0.01 at expiration, it will automatically be exercised for the buyer and assigned to a seller. However, there's something called a do not exercise (DNE) request that a long option holder can submit if they want to abandon an option. In such a case, it's possible that a short ITM position might not be assigned. For more, see the note below on pin risk 7 ?
You'd better have enough cash . If an option on XYZ is exercised or assigned and you are "uncovered" (you don't have an existing long or short position in the underlying security), a long or short position in the underlying stock will replace the options. A long call or short put will result in a long position in XYZ; a short call or long put will result in a short position in XYZ. For long stock positions, you need to have enough cash to cover the purchase or else you'll be issued a margin 8 call, which you must meet by adding funds to your account. But that timeline may be short, and the broker, at its discretion, has the right to liquidate positions in your account to meet a margin call 9 . If exercise or assignment involves taking a short stock position, you need a margin account and sufficient funds in the account to cover the margin requirement.
Short equity positions are risky business . An uncovered short call or long put, if assigned or exercised, will result in a short stock position. If you're short a stock, you have potentially unlimited risk because there's theoretically no limit to the potential price increase of the underlying stock. There's also no guarantee the brokerage firm can continue to maintain that short position for an unlimited time period. So, if you're a newbie, it's generally inadvisable to carry an options position into expiration if there's a chance you might end up with a short stock position.

A note on pin risk : It's not common, but occasionally a stock settles right on a strike price at expiration. So, if you were short the 105-strike calls and XYZ settled at exactly $105, there would be no automatic assignment, but depending on the actions taken by the option holder, you may or may not be assigned—and you may not be able to trade out of any unwanted positions until the next business day.

But it goes beyond the exact price issue. What if an option is ITM as of the market close, but news comes out after the close (but before the exercise decision deadline) that sends the stock price up or down through the strike price? Remember: The owner of the option could submit a DNE request.

The uncertainty and potential exposure when a stock price and the strike price are the same at expiration is called pin risk. The best way to avoid it is to close the position before expiration.

The decision tree: How to approach expiration

As expiration approaches, you have three choices. Depending on the circumstances—and your objectives and risk tolerance—any of these might be the best decision for you.

1. Let the chips fall where they may. Some positions may not require as much maintenance. An options position that's deeply OTM will likely go away on its own, but occasionally an option that's been left for dead springs back to life. If it's a long option, the unexpected turn of events might feel like a windfall; if it's a short option that could've been closed out for a penny or two, you might be kicking yourself for not doing so.

Conversely, you might have a covered call (a short call against long stock), and the strike price was your exit target. For example, if you bought XYZ at $100 and sold the 110-strike call against it, and XYZ rallies to $113, you might be content selling the stock at the $110 strike price to monetize the $10 profit (plus the premium you took in when you sold the call but minus any transaction fees). In that case, you can let assignment happen. But remember, assignment is likely in this scenario, but it is not guaranteed.

2. Close it out . If you've met your objectives for a trade, then it might be time to close it out. Otherwise, you might be exposed to risks that aren't commensurate with any added return potential (like the short option that could've been closed out for next to nothing, then suddenly came back into play). Keep in mind, there is no guarantee that there will be an active market for an options contract, so it is possible to end up stuck and unable to close an options position.

The close-it-out category also includes ITM options that could result in an unwanted long or short stock position or the calling away of a stock you didn't want to part with. And remember to watch the dividend calendar. If you're short a call option near the ex-dividend date of a stock, the position might be a candidate for early exercise. If so, you may want to consider getting out of the option position well in advance—perhaps a week or more.

3. Roll it to something else . Rolling, which is essentially two trades executed as a spread, is the third choice. One leg closes out the existing option; the other leg initiates a new position. For example, suppose you're short a covered call on XYZ at the July 105 strike, the stock is at $103, and the call's about to expire. You could attempt to roll it to the August 105 strike. Or, if your strategy is to sell a call that's $5 OTM, you might roll to the August 108 call. Keep in mind that rolling strategies include multiple contract fees, which may impact any potential return.

The bottom line on options expiration

You don't enter an intersection and then check to see if it's clear. You don't jump out of an airplane and then test the rip cord. So do yourself a favor. Get comfortable with the mechanics of options expiration before making your first trade.

1 Describes an option with intrinsic value (not just time value). A call option is in the money (ITM) if the stock price is above the strike price. A put option is ITM if the stock price is below the strike price. For calls, it's any strike lower than the price of the underlying equity. For puts, it's any strike that's higher.

2 Describes an option with no intrinsic value. A call option is out of the money (OTM) if its strike price is above the price of the underlying stock. A put option is OTM if its strike price is below the price of the underlying stock.

3 An options contract gives the owner the right but not the obligation to buy (in the case of a call) or sell (in the case of a put) the underlying security at the strike price, on or before the option's expiration date. When the owner claims the right (i.e. takes a long or short position in the underlying security) that's known as exercising the option.

4 Assignment happens when someone who is short a call or put is forced to sell (in the case of the call) or buy (in the case of a put) the underlying stock. For every option trade there is a buyer and a seller; in other words, for anyone short an option, there is someone out there on the long side who could exercise.

5 A call option gives the owner the right, but not the obligation, to buy shares of stock or other underlying asset at the options contract's strike price within a specific time period. The seller of the call is obligated to deliver, or sell, the underlying stock at the strike price if the owner of the call exercises the option.

6 Gives the owner the right, but not the obligation, to sell shares of stock or other underlying assets at the options contract's strike price within a specific time period. The put seller is obligated to purchase the underlying security at the strike price if the owner of the put exercises the option.

7 When the stock settles right at the strike price at expiration.

8 Margin is borrowed money that's used to buy stocks or other securities. In margin trading, a brokerage firm lends an account owner a portion of the purchase price (typically 30% to 50% of the total price). The loan in the margin account is collateralized by the stock, and if the value of the stock drops below a certain level, the owner will be asked to deposit marginable securities and/or cash into the account or to sell/close out security positions in the account.

9 A margin call is issued when your account value drops below the maintenance requirements on a security or securities due to a drop in the market value of a security or when a customer exceeds their buying power. Margin calls may be met by depositing funds, selling stock, or depositing securities. Charles Schwab may forcibly liquidate all or part of your account without prior notice, regardless of your intent to satisfy a margin call, in the interests of both parties.

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How dividends can increase options assignment risk

Most experienced investors are familiar with the adage that "if an investment opportunity sound too good to be true, it probably is." While this sentiment may often be associated with overly optimistic assumptions, it also applies to investors who sell options contracts without first considering the ex-dividend date for a stock or ETF.

How dividends work

A quick review of how dividends work: A dividend represents a payment of a company's revenues to shareholders, most often in the form of cash. Cash dividends are paid out on a per-share basis. For example, if you own 100 shares of a stock that pays a $0.50 quarterly dividend, you will receive $50.

Not all companies pay dividends, but if you're investing in options contracts for companies that do pay them, you need to keep several important dates in mind:

Declaration date: Date on which a company announces the per-share amount of its next dividend.
Record date: The cut-off date established by the company to determine which shareholders of its stock are eligible to receive a distribution. This is usually, but not always, 1 day after the ex-dividend date.
Ex-Dividend date: Date on which a stock's price adjusts downward to reflect its next dividend payment. For example, if a stock pays a $0.50 dividend, the stock price will drop by a half point prior to trading on the ex-dividend date. If you buy a stock on or after the ex-dividend date, you are not entitled to the next dividend.
Dividend (payment) date: Date shareholders receive cash in their account from a dividend.

See Locating dividend information for stocks for additional details.

Dividends offer an effective way to earn income from your equity investments. However, call option holders are not entitled to regular quarterly dividends, regardless of when they purchase their options. And, unlike stock or ETF prices, options contract prices are not adjusted downward on ex-dividend dates.

This can cause a problem for anyone who has sold an options contract without first considering the impact of dividends. Why? Because the risk of being assigned on an option contract is higher when the underlying security of an in-the-money option starts trading ex-dividend. To understand the risks and how dividends impact options contracts, let's explore some potential scenarios.

Avoiding or managing early assignment on covered calls

As noted above, the ex-dividend date is particularly important to anyone who writes a covered or uncovered call option. If a covered call option you have sold is in the money and the dividend exceeds the remaining time value of the option, there is a good chance an owner of those calls will exercise his options early.

If you are assigned, you must deliver your shares of the underlying security, as well as the dividend income, to the owner of the call. Let's examine a hypothetical example to illustrate how this works.

Bob owns 500 shares of ABC stock, which pays a quarterly $0.50 dividend.
The stock is trading around $25 a share on August 1 when Bob decides to sell 5 October 30 calls.
By early October, ABC stock has risen to $31 and, as a result, Bob's covered calls are in the money by $1. The calls will expire in 10 days and tomorrow the stock will start trading ex-dividend.
Because the remaining time value of the call option is less than the value of the dividends, the call owner will likely exercise his options on the day before the ex-dividend date.

See Locating option values in Active Trader Pro ® .

If Bob does not take any action to close his covered call position, there is a good chance he will be assigned on the ex-dividend date. This means he will no longer own 500 shares of the stock and he will not receive the dividend income.

To avoid this scenario, Bob has a couple of choices:

He could buy back the calls he sold to retain the stock and the dividend. However, he would have to do this prior to the ex-dividend date. If he waits until the ex-dividend date or later, he will not be entitled to the dividend income. Keep in mind that it's possible to get assigned prior to the day before the ex-dividend date, so this strategy is not foolproof.
The other option is to close out his short position and write a new covered call with a later expiration date or a higher strike price. This strategy is known as "rolling" your options contract forward.

Avoiding or managing early assignment on calls not covered by shares

Now let's consider what could happen if Bob had sold uncovered calls on ABC stock:

As in the example above, ABC stock pays a quarterly $0.50 dividend and is trading around $25 a share
Bob has a negative view on the stock and decides to sell 5 uncovered October 30 calls
By early October, ABC stock has risen to $31 and, as a result, his uncovered calls are in the money by $1

To make matters worse, Bob learns that tomorrow the stock will start trading ex-dividend. Because the remaining time value of the options is less than the value of the dividends, owners of these calls will likely exercise their options 1 day prior to the ex-dividend date.

To limit his exposure, Bob has several choices. He can buy back his uncovered calls at a loss, buy the stock to capture the dividend, or sit tight and hope to not be assigned. If his calls are assigned, however, he will have to pay the $250 in dividend income, in addition to covering the cost of delivering 500 shares of ABC stock. If Bob had initiated an option spread (buying and selling an equal number of options of the same class on the same underlying security but with different strike prices or expiration dates), he could also consider exercising his long option position to capture the dividend.

Other considerations and risks

If you are implementing a spread strategy that includes long contracts and short contracts, you need to remain particularly vigilant in regard to assignment risk. If both contracts are in the money and you are assigned on the short contracts, you will not be notified until the following business day. While you can exercise your long position on the ex-dividend date to eliminate the short stock position that was created, you will still owe the dividend because you were short the stock prior to the ex-dividend date.

Ways to avoid the risk of early assignment

If you are selling options (covered or uncovered), there is always the risk of being assigned if your trade moves against you. This risk is higher if the underlying security involved pays a dividend. However, there are ways to reduce the likelihood of being assigned early. These include:

Do your homework: Know if the stock or ETF pays a dividend and when it will start trading ex-dividend
Avoid selling options on dividend-paying stocks or ETFs when your trade includes ex-dividend
Invest in European-style options: American-style options can be assigned at any time before the option expires, European-style options can only be exercised at expiration

See Locating dividend information for ETFs for details.

If you are a Fidelity customer and you have questions about your exposure to assignment risk, you can always contact a Fidelity representative for help.

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Option Assignment Process

Options trading 101 - the ultimate beginners guide to options.

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One of the biggest fears that new options traders have is that they may get assigned. The option assignment process means that the option writer is obligated to deliver on the terms specified in a contract.

For example, if a put option is assigned, the options writer would need to buy the underlying security at the strike price dictated in the contract.

Likewise for a call option, the options write would need to sell the underlying security at the strike price dictated in the contract.

As an options trader you’re usually seeking to make a profit from directional bets or to hedge your portfolio.

You’re rarely, if ever, looking to actually buy or sell the underlying security so being assigned can sound like a scary prospect.

This article will explore the option assignment process so you can understand how it works and how you can prevent yourself getting stuck with buying or selling an underlying security.

When Assignment Occurs

Assignment occurs when an option holder exercises an option. Exercising an option simply means that the option holder executes the terms in the options contract.

So for example if you are holding a call option, you have the right, but not the obligation to buy the underlying security at the agreed strike price.

When you exercise the option, the option holder will need to sell the underlying security at the agreed strike price and for the agreed quantity.

If you’re dealing with European style options, you will know when expiration is possible because they can only be exercised on the expiration date itself.

For American style options, which is what most people trade, options can be exercised at any time before the expiration date.

This means that if you are an options writer of American style options, you could theoretically be asked at any time to comply with the terms of the contract.

Unfortunately, there is no knowing when an assignment will take place.

However, generally options are not exercised prior to expiration as it is usually much more profitable to sell the option instead.

It’s worth noting that this will only happen to you if you’re an options seller. Option buyers can never be assigned.

There are two key steps to assignment and to make it fair, the process of selecting who is assigned is random.

In the first step, the Options Clearing Corporation (OCC) will issue an exercise notice to a randomly selected Clearing Member who maintains an account with the OCC.

In the second step, the Clearing Member then assigns the exercise notice to an individual account.

When You Are Most At Risk

There are several situations that can dramatically increase the risk that you will be assigned:

Situation 1: Your option is In The Money (ITM)

When an option is ITM, an option holder would stand to profit if they exercised the option.

The deeper the option is ITM, the greater the profit for the option holder and therefore the higher risk they may exercise the option and you will be assigned.

Situation 2: The option has an upcoming dividend

An ITM call buyer can profit from exercising an option before its ex-dividend date if the extrinsic value of the call is less than the amount of the dividend.

Situation 3: There is no extrinsic value left

If there is no extrinsic value left, an option buyer could be tempted to exercise the option.

If there is extrinsic value, an option buyer would typically make a bigger profit by selling the option and buying/selling shares of the underlying asset.

How You Can Avoid The Risk Of Being Assigned

There are several steps you can take to avoid, or at the very least minimise, your risk of being assigned.

The first step to consider is avoiding selling any options that have an upcoming dividend.

Before selling any option, first check that the underlying security doesn’t have an upcoming dividend and if it does, consider waiting until after the dividend has occurred (i.e. the stock has gone ex-dividend).

If you do end up selling an option with an upcoming dividend, then the second step to protecting yourself is to close your position early as your risk begins to increase.

For example, if you are short an option with an extrinsic value less than the dividend amount and the ex-dividend of the underlying security is not too far away, close your position.

Otherwise you risk being assigned and being forced to pay the dividend as well!

To completely avoid early assignment risk, you could always sell only European style options which are cash settled at expiration. You can read more that here and here .

The final way to manage your risk is to close positions well before expiration date approaches.

As the time left to expiration decreases, so too does the extrinsic value. For option buyers, it means they could stand to benefit and so there is a risk they may exercise the option.

While this article deals with the process and risks behind being assigned, there will be times when this isn’t an issue for you.

Provided you have enough capital to meet the assignment, you may be fine with being assigned.

If this is the case, you would simply have a new stock position added which you could hold onto or immediately liquidate.

In the event that you don’t have enough capital, your broker will issue you with a margin call and the position should be automatically closed.

As the process of assignment can differ between brokers, its best you contact your broker to check the specific process they use when issuing assignments to individual accounts.

In general, provided you take a few key steps to mitigate your risks, particularly around dividend issuing securities, the chances of assignment are very low.

Trade safe!

Disclaimer: The information above is for educational purposes only and should not be treated as investment advice . The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.

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Assignment in Options Trading

Introduction articles, what is an options assignment.

In options trading , an assignment occurs when an option is exercised.

As we know, a buyer of an option has the right but not the obligation to buy or sell an underlying asset depending on what option they have purchased. When the buyer exercises this right, the seller will be assigned and will have to deliver or take delivery of what they are contractually obliged to. For stock options, it is typically 1 , 000 shares per contract for the UK ; and 100 shares per contract in the US.

As you can see, a buyer will never be assigned, only the seller is at risk of assignment. The buyer, however, may be auto exercised if the option expires in-the-money .

The Mechanics of Assignment

Assignment of options isn’t a random process. It’s a methodical procedure that follows specific steps, typically beginning with the option holder’s decision to exercise their option. The decision then gets routed through various intermediaries like brokers and clearing +houses before the seller is notified.

Exercise by Holder: The holder (buyer) of the option exercises their right to buy (for Call ) or sell (for Put ).
Random Assignment by a Clearing House: A clearing house assigns the obligation randomly among all sellers of the option.
Fulfilment by the Writer: The writer (seller) now must fulfill the obligation to sell (for Call) or buy (for Put) the underlying asset.

Option Assignments: Calls and Puts

Call option assignments.

When a call option holder chooses to exercise their right, the seller of the call option gets assigned. In such a situation, the seller is obligated to sell the underlying asset at the strike price to the call option holder.

Put Option Assignments

Similarly, if a put option holder decides to exercise their right, the put option seller gets assigned. The seller is then obligated to buy the underlying asset at the strike price from the put option holder.

The Implications of Assignments for Options Traders

Understanding assignment in options trading is crucial as it comes with potential risks and rewards for both parties involved.

For Option Sellers

Option sellers, or ‘writers,’ face the risk of unexpected assignments. The risk of being assigned early is especially present for options that are in the money or near their expiration date. We explain the difference between American and European assignments below.

For Option Holders

For option holders, deciding when to exercise an option (potentially leading to assignment) is a strategic decision. This decision must consider factors such as the intrinsic value of the option, the time value, and the dividend payment of the underlying asset.

Can Options be assigned before expiration?

In short, Yes, but it depends on the style of options you are trading.

American Style – Yes, this type of option can be assigned on or before expiry.

European Style – No, this type of option can only be assigned on the expiry date as defined in the contract specifications.

Options Assignment Example

For example, an investor buys XYZ PLC 400 call when the stock is trading at 385. The stock in the coming weeks rises to 425 after some good news, the buyer then decides to exercise their right early to buy the XYZ PLC stock at 400.

In this scenario, the call seller (writer) has been assigned and will have to deliver stock at 400 to the buyer (sell their stock at 400 when the prevailing market is 425).

An option typically would only be assigned if it is in the money, considering factors like dividends which do play an important role in exercise/assignments.

Can an Options Assignment be Prevented?

Assignment can sometimes come as a bit of a surprise but normally you should see it coming. You can only work to prevent assignment by closing the option before expiry or before any possible risk of assignment.

Managing Risks in Options Trading

While options trading can offer high returns, it is not devoid of risks. Therefore, understanding and managing these risks is key.

Buyers Risk: The premium paid for an option is at risk. If the option is not profitable at expiration, the premium is lost.

Writers Risk: The writer takes on a much larger risk. If a call option is assigned, they must sell the underlying asset at the strike price, even if its market price is higher.

Options Assignment Summary

The concept of ‘assignment’ in options trading, although complex, is a cornerstone of understanding options trading. It not only clarifies the responsibilities of an options seller but also helps the traders to gauge and manage their risks more effectively. Successful trading involves not just knowing your options but also understanding your obligations.

Options Assignment FAQs

What is options assignment.

Options assignment refers to the process by which the seller (writer) of an options contract is obligated to fulfill their contractual obligation to buy or sell the underlying asset, as specified by the terms of the options contract.

When does options assignment occur?

Options assignment can occur when the buyer of the options contract exercises their right to buy (in the case of a call option) or sell (in the case of a put option) the underlying asset before or at expiration .

How does options assignment work?

When a buyer exercises their options contract, a clearing house randomly assigns a seller who is short (has written) the same options contract to fulfill the obligations of the exercise.

What happens to the seller upon options assignment?

If assigned, the seller (writer) of the options contract is obligated to fulfill their contractual obligation by buying or selling the underlying asset at the specified price (strike price) per the terms of the options contract.

Can options be assigned before expiration?

Yes, options can be assigned at any time (depending on contract type) before expiration if the buyer chooses to exercise their right. However, it is more common for options to be assigned closer to expiration as the time value diminishes.

What factors determine options assignment?

Options assignment is determined by the buyer’s decision to exercise their options contract. They may choose to exercise if the options contract is in-the- money and it is financially advantageous for them to do so.

How can I avoid options assignment?

As a seller (writer) of options contracts, you can avoid assignment by closing your position before expiration through a closing trade (buying back the options contract) or rolling it over to a future expiration date.

What happens if I am assigned on a short call option?

If assigned on a short call option, you are obligated to sell the underlying asset at the specified price (strike price). This means you would need to deliver the shares . To fulfill this obligation, you may need to buy the shares in the open market if you do not hold them .

What happens if I am assigned on a short put option?

If assigned on a short put option, you are obligated to buy the underlying asset at the specified price (strike price). This means you would need to purchase the shares .

How does options assignment affect my account?

Options assignment can impact your account by requiring you to fulfill the obligations of the assigned options contract, which may involve buying or selling the underlying asset. It is important to have sufficient funds or margin available to cover these obligations.

OptionsDesk Tips & Considerations

You should always have enough funds in your account to cover any assignment risk. If you have a short call position and it is in-the-money at the time of an ex-dividend be aware of extra assignment risk here as buyer/holder of the option may look to exercise to qualify for the dividend. Assignments can happen at any time!

Check out our other articles

Important information : Derivative products are considerably higher risk and more complex than more conventional investments, come with a high risk of losing money rapidly due to leverage and are not, therefore, suitable for everyone. Our website offers information about trading in derivative products, but not personal advice. If you’re not sure whether trading in derivative products is right for you, you should contact an independent financial adviser. For more information, please read our Important Derivative Product Trading Notes .

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How to Avoid an Option Assignment

This message is coming out a day early because the underlying stock we have been trading options on has fallen quite a bit once again, and the put we sold to someone else is in danger of being exercised, so we will trade a day earlier than usual to avoid that possibility.

I hope you find this ongoing demonstration of a simple options strategy designed to earn 3% a week to be a simple way to learn a whole lot about trading options.

Owning options is a little more complicated than owning stock. When an expiration date of options you have sold to someone else approaches, you need to compare the stock price to the strike price of the option you sold. If that option is in the money (i.e., if it is put, the stock is trading at a lower price than the strike price, and if it is a call, the stock is trading at a higher price than the strike price), in order to avoid an exercise, you will need to buy back that option. Usually, you make that trade as part of a spread order when you are selling another option which has a longer life span.

If the new option you are selling is at the same strike price as the option you are buying back, it is called a calendar spread (also called a time spread), and if the strike prices are different, it is called a diagonal spread.

Usually, the owner of any expiring put or call is better off selling their option in the market rather than exercising the option. The reason is that there is almost always some remaining premium over and above the intrinsic value of the option, and you can almost always do better selling the option rather than exercising your option. Sometimes, however, on the day or so before an option expires, when the time premium becomes very small (especially for in-the-money options), the bid price may not be great enough for the owner to sell the option on the market and still get the intrinsic value that he could get through exercising.

To avoid that from happening to you when you are short the option, all you need to do is buy it back before it expires, and no harm will be done. You won’t lose much money even if an exercise takes place, but sometimes commissions are a little greater when there is an exercise. Not much to worry about, however.

SVXY fell to the $74 level this week after trading about $78 last week. In our actual demonstration portfolio we had sold an Oct1-14 81 put (using our Jan-15 90 put as security). When you are short an option (either a put or a call) and it becomes several dollars in the money at a time when expiration is approaching, there is a good chance that it might be exercised. Although having a short option exercised is sort of a pain in the neck, it usually doesn’t have much of a financial impact on the bottom line. But it is nice to avoid if possible.

We decided to roll over the 81 put that expires tomorrow to next week’s option series. Our goal is to always collect a little cash when we roll over, and that meant this week we could only roll to the 80.5 strike and do the trade at a net credit. Here is the trade we made today:

Buy To Close 1 SVXY Oct1-14 81 put (SVXY141003P81) Sell To Open 1 SVXY Oct2-14 80.5 put (SVXY141010P80.5) for a credit of $.20 (selling a diagonal)

Our account value is now $1620 from our starting value of $1500 six weeks ago, and we have $248 in cash as well as the Jan-15 90 put which is trading about $20 ($2000). We have not quite made 3% a week so far, but we have betting that SVXY will move higher as it does most of the time, but it has fallen from $86 when we started this portfolio to $74 where it is today. One of the best things about option trading is that you can still make gains when your outlook on the underlying stock is not correct. It is harder to make gains when you guess wrong on the underlying’s direction, but it is possible as our experiment so far has demonstrated.

Making 36% – A Duffer's Guide to Breaking Par in the Market Every Year in Good Years and Bad

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Learn why Dr. Allen believes that the 10K Strategy is less risky than owning stocks or mutual funds, and why it is especially appropriate for your IRA.

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I have been trading the equity markets with many different strategies for over 40 years. Terry Allen's strategies have been the most consistent money makers for me. I used them during the 2008 melt-down, to earn over 50% annualized return, while all my neighbors were crying about their losses. ~ John Collins

Options are not suitable for all investors as the special risks inherent to options trading my expose investors to potentially rapid and substantial losses. Please read Characteristics and Risks of Standardized Options before investing in options

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Eliminate Assignment and Exercise Risk with Index Options

T raders have significantly more variables to account for when trading options over stocks. As an equity investor, only the fluctuation of the underlying affects the profit and loss of a position. However, with options, the underlying price, volatility, time, and even expiration and assignment risks need to be accounted for. In this post we will explore the significant advantage of trading index option that is embedded in the European-style cash settlement process. Eliminating a low probability but potentially severe risk of assignment and exercise risk can lead investors to a shorter learning curve and more consistent results. Additionally, with the launch of the XND, the Nasdaq-100 Micro Index Option , investors can now access the full benefits of Index options in a retail-friendly size.

European Style Cash Settlement vs. American Style Physical Delivery

Source: OptionsPlay

Why are European Cash Settled options an advantage for traders?

One of the major challenges of options trading is tracking the fluctuations in the underlying security, time, volatility, and interest rates that impact an option's price. These variables already present a challenge for many investors to monitor and account for all of them. However, assignment and exercise risk pose additional headaches for American Style equity options, representing 99% of all stock and ETFs options. As a market strategist, I have witnessed rare but significant exposure with vertical spread trades that have lost substantially more than the max risk of a strategy due to these two risks. European Cash Settled index options outright eliminates these risks.

What is assignment risk, and how can I avoid it?

With American-style options, a call or put can be exercised at any time by the buyer before expiration. Even when a spread is covered by a long option, an early exercise would require a short option holder to have the capital to buy or sell those shares. Most investors with a spread position may not have the cash or margin required to buy or sell the securities of the short leg. Even to exercise the offsetting long option would require the cash or margin to exercise and satisfy the obligation of the short option. For investors without the capital, it forces the broker to liquidate the entire position upon an early exercise.

While this risk cannot be avoided when trading American Style stock or ETF options, European-style Index Options on the Nasdaq-100 eliminate this risk entirely, they simply cannot be exercised early. Especially for new options traders, removing this element of risk is a way to flatten the learning curve and reduce the factors to consider on a trade. However, for investors trading American Style stock or ETF options, this risk can be minimized but not eliminated by closing out short option positions at least two weeks before expiration.

What is exercise risk, and how can I avoid it?

Exercise risks are rare but occur when an investor incorrectly anticipates an underlying security's value immediately after expiration. An example, is a short call or put option that expires worthless and 'out-of-the-Money" (OTM) based on expiration Friday's closing price but opens up Monday' In-the-money" (ITM). In this scenario, a short option investor may be inclined to let their short options expire worthless without buying back the call or put to remove the obligation. However, news, earnings, or other catalysts after the close causes the option buyer to anticipate a favorable move by Monday's open and exercises their option despite it being OTM on expiration Friday. This causes a short option that should have realized its full profit as of Friday's close with no exposure, to be exposed on Monday with a surprise underlying equity position. In comparison, these scenarios are rare but occur when earnings reports or material news are released after the close on Friday. For an index, these could be geopolitical events or macroeconomic news that cause an OTM option buyer to still exercise the call or put.

The best practice for avoiding exercise risk is simply closing out all short option positions, even if they are OTM before expiration. Paying a few cents to buy back a call or put that is nearly worthless will significantly outweigh the risk of exercise risk. However, with European cash-settled index options such as on the Nasdaq-100 Index, options that expire worthless can never be exercised, and gains are settled to cash based on Friday's close, eliminating all exercise risks.

Despite the benefits and advantages of trading index options , ETF options have historically provided better flexibility on sizing. Index options on the Nasaq-100 Index had large notional value, reducing the ability for smaller retail traders to utilize them. However, with the new XND product launch , a 1/100 th value of the full Nasdaq-100 Index, retail traders can have the best of both worlds. XND provides the advantages of index options, with a contract sizing that is roughly a 1/3 rd of QQQ.

Nasdaq-100 Index and ETF Listed Options

Source: Nasdaq

Trading options involve tracking a significant number of variables, including assignment and exercise risk. While both Index and ETF options provide exposure to the same index European style and cash-settled, which eliminate the assignment and exercise risks embedded in an American style option. Moreover, the tax advantage provided by Index options, can lower a tax bill on similar trades. Lastly, the new retail focused XND product, provide investors of all sizes the ability to benefit from the reduced risk of index options.

To learn more about the launch of XND, don’t miss our Introduction to Trading Index Options webinar. Watch the event replay here .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

Tony Zhang is a specialist in the financial services industry with over a decade of experience spanning product development, research and market strategist roles across equities, foreign exchange and derivatives. As the current Chief Strategist for OptionsPlay, Tony currently leads the research and development of their OptionsPlay Ideas & Portfolio platform. He has leveraged his interest in financial technology and product development to provide innovative reimagined solutions to clients and the users they seek to serve. Previously, he spent 7 years at FOREX.com with a capital markets and research background as a market strategist specializing in equity and FX derivatives markets.

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Assets & Markets

What Is an Option Assignment?

Definition and Examples of Assignment

How does assignment work, what it means for individual investors.

Morsa Images / Getty Images

An option assignment represents the seller of an option’s obligation to fulfill the terms of the contract by either selling or purchasing the underlying security at the exercise price. Let’s explain what that means in more detail.

Key Takeaways

An assignment represents the seller of an option’s obligation to fulfill the terms of the contract by either selling or purchasing the underlying security at the exercise price.
If you sell an option and get assigned, you have to fulfill the transaction outlined in the option.
You can only get assigned if you sell options, not if you buy them.
Assignment is relatively rare, with only 7% of options ultimately getting assigned.

An assignment represents the seller of an option’s obligation to fulfill the terms of the contract by either selling or purchasing the underlying security at the exercise price. Let’s explain what that means in more detail.

When you sell an option to someone, you’re selling them the right to make you engage in a future transaction. For example, if you sell someone a put option , you’re promising to buy a stock at a set price any time between when the transaction happens and the expiration date of the option.

If the holder of the option doesn’t do anything with the option by the expiration date, the option expires. However, if they decide that they want to go through with the transaction, they will exercise the option.

If the holder of an option chooses to exercise it, the seller will receive a notification, called an assignment, letting them know that the option holder is exercising their right to complete the transaction. The seller is legally obligated to fulfill the terms of the options contract.

For example, if you sell a call option on XYZ with a strike price of $40 and the buyer chooses to exercise the option, you’ll be assigned the obligation to fulfill that contract. You’ll have to buy 100 shares of XYZ at whatever the market price is, or take the shares from your own portfolio and sell them to the option holder for $40 each.

Options traders only have to worry about assignment if they sell options contracts. Those who buy options don’t have to worry about assignment because in this case, they have the power to exercise a contract, or choose not to.

The options market is huge, in that options are traded on large exchanges and you likely do not know who you’re buying contracts from or selling them to. It’s not like you sell an option to someone you know and they send you an email if they choose to exercise the contract, rather it is an organized process.

In the U.S., the Options Clearing Corporation (OCC), which is considered the options industry clearinghouse, helps to facilitate the exchange of options contracts. It guarantees a fair process of option assignments, ensuring that the obligations in the contract are fulfilled.

When an investor chooses to exercise a contract, the OCC randomly assigns the obligation to someone who sold the option being exercised. For example, if 100 people sold XYZ calls with a strike of $40, and one of those options gets exercised, the OCC will randomly assign that obligation to one of the 100 sellers.

In general, assignments are uncommon. About 7% of options get exercised, with the remaining 93% expiring. Assignment also tends to grow more common as the expiration date nears.

If you are assigned the obligation to fulfill an options contract you sold, it means you have to accept the related loss and fulfill the contract. Usually, your broker will handle the transaction on your behalf automatically.

If you’re an individual investor, you only have to worry about assignment if you’re involved in selling options. Even then, assignments aren't incredibly common. Less than 7% of options get assigned and they tend to get assigned as the option’s expiration date gets closer.

Having an option assigned does mean that you are forced to lock in a loss on an option, which can hurt. However, if you’re truly worried about assignment, you can plan to close your position at some point before the expiration date or use options strategies that don’t involve selling options that could get exercised.

The Options Industry Council. " Options Assignment FAQ: How Can I Tell When I Will Be Assigned? " Accessed Oct. 18, 2021.

SI SWIMSUIT
SI SPORTSBOOK

Chicago Cubs Shake Up Bullpen After Making Trade With Seattle Mariners

Brad wakai | may 15, 2024.

Mar 18, 2024; Surprise, Arizona, USA; Seattle Mariners pitcher Tyson Miller

Chicago Cubs

The Chicago Cubs have gotten dominated during their first two games against the Atlanta Braves , getting outscored 9-0 and having already lost the series.

It was a measuring stick type of bout, one where the Cubs would be able to see how they might fare against one of the best teams in the National League if they were matched up in the fall.

Right now, it's clear there is a lot of work to do.

After starting off hot, their offense has quietly dipped into the bottom half of metrics like runs, batting average, and slugging percentage. They aren't Top 10 in a single offensive category, which is one of the reasons why they couldn't hold onto their NL Central lead.

But, Chicago has shown the ability to get hot at the plate in the past, so there is optimism things will get turned around on that front.

What is still an issue, however, is their bullpen.

The Cubs suffered from multiple injuries and poor performances at the worst time last season that caused them to flounder late in the year and miss the playoffs.

While the front office searched for upgrades during the winter and was able to land a few, this unit is still one of the worst in Major League Baseball, sitting 24th with a 4.50 ERA entering Wednesday. They're also tied for the third-most credited losses with 13 and have blown nine saves.

Struggling reliever Adbert Alzolay was placed on the injured list .

In addition to rehabbing to get healthy, he and the organization are also hoping this allows him time to work on certain things that have been plaguing him this year.

So, as Chicago has searched for answers, they decided to take the external route and pulled off a trade with the Seattle Mariners .

Their team's social media page announced they acquired right-hander Tyson Miller in exchange for minor league infielder Jake Slaughter. In a corresponding move, Richard Lovelady was designated for assignment to make room on the 40-man roster for Miller.

The Cubs reunited with their 2016 fourth round draft pick in Miller who pitched two games for them in 2020 where he allowed three earned runs in five innings pitched.

He already was called upon by manager Craig Counsell and showed well, throwing two scoreless innings and allowing just one hit.

Lovelady can now be claimed by other teams after his DFA, but if he clears waivers, he also has the ability to reject the assignment and hit free agency.

With how thin Chicago's bullpen is from a performance standpoint, they likely want him to stay and be an option, but that's dependent on how the left-hander feels about the situation and how others around the league view him.

Brad Wakai graduated from Penn State University with a degree in Journalism. While an undergrad, he did work at the student radio station covering different Penn State athletic programs like football, basketball, volleyball, soccer and other sports. Brad currently is the Lead Contributor for Nittany Lions Wire of Gannett Media where he continues to cover Penn State athletics. He is also a contributor at FanSided, writing about the Philadelphia 76ers for The Sixers Sense. Brad is the host of the sports podcast I Said What I Said, discussing topics across the NFL, College Football, the NBA and other sports. You can follow him on Twitter: @bwakai

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Marine combat instructors can avoid recruiting or drill instructor duty

The Marine Corps has made the combat instructor job a special duty assignment once more, effectively allowing those instructors to sidestep the sometimes-dreaded recruiter or drill instructor jobs .

Each year, a portion of Marine noncommissioned officers are given special duty assignments, which take them out of their regular jobs for a few years to perform other duties on behalf of the Corps. Now, the combat instructor job, which entails training Marines in combat skills, counts as a special duty assignment.

“It’s an extremely rewarding duty because you actually get to affect and to teach the warfighting skills that all Marines learn through the entry-level training pipeline, and it’s really critical for the operational readiness of the force,” Gunnery Sgt. Tyler Stokes , the enlisted assignments monitor for the combat instructor community, said in a video the Marine Corps recently posted to LinkedIn.

Marines get plucked from their regular jobs and placed into special duty assignments through the annual Headquarters Marine Corps Special Duty Assignment Screening Team screening process, often called HSST for short.

The Marine Corps itself said in an administrative message in 2023, “A successful SDA tour is a hallmark of a competitive Marine and makes him or her exceptionally qualified for promotion.”

The other special duty assignments are recruiter, drill instructor and Marine security guard detachment commander. Before a rule change that was announced in 2017, combat instructor and Marine security guard watchstander also counted as special duty assignments.

After that change, those two jobs became Type 1 screenable billets, a category that also includes Marine Corps security forces guards, staff noncommissioned officer academy faculty advisors and curriculum developers, and Marine special operators, among others, according to Marine spokeswoman Capt. Sarah Eason.

“Designation as a Special Duty Assignment increases the staffing priority of this duty, ensuring maximum fill of available billets,” Eason said of the recent redesignation of the combat instructor role via email May 3.

A 2019 analysis by the Marine Corps of the impact of special duty assignments — which at the time didn’t include combat instructor — on Marines’ lives found they were correlated with better promotion chances but also with higher rates of divorce, addiction and suicide attempts.

“Due to increased responsibilities and duties outside of one’s normal occupational field, SDA tours are often viewed as a Marine’s most stressful noncombat tour,” the analysis stated.

Now that being a combat instructor is a special duty assignment again, Marines who complete that role won’t end up on future HSST lists, according to Eason.

For the next special duty assignment season, fiscal year 2026, combat instructor may be an option for Marines who end up on the list “but will be subject to availability after the volunteer period,” Eason said.

“Unlike other SDAs, there are a limited number of Combat Instructor billets open to any primary military occupational specialty, and these routinely fill with volunteers,” the spokeswoman added. “The preponderance of Combat Instructor billets requires an infantry primary (military occupational specialty), so Marines in this field will likely be able to request Combat Instructor duty during the HSST.”

As a special duty assignment, the combat instructor role will come with incentives that include easier promotions and choice over a next duty station, according to Eason. Combat instructors will continue to receive special pay.

A plan to make the combat instructor job a special duty assignment again has been in the works since at least 2021, as the Corps planned to lengthen the infantry course from nine to 14 weeks, creating a demand for more instructors. Training Command did not respond by time of publication to a Marine Corps Times question about the current length of the course.

Irene Loewenson is a staff reporter for Marine Corps Times. She joined Military Times as an editorial fellow in August 2022. She is a graduate of Williams College, where she was the editor-in-chief of the student newspaper.

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Implement Universal Design for Learning with Assignments

by Mohammad Ahmed | May 14, 2024 | Accessibility , How-tos , Instructional design , Services , Universal Design for Learning

A pencil lying on top of a notebook, with a math textbook next to it.

This post is the second installment in a series on Universal Design for Learning. For more information, please see previous installments in this series .

When you are designing assignments to help your class practice new concepts, you can set up your students for success by implementing the principles of Universal Design for Learning (UDL). This involves creating tasks that provide multiple means of representation, expression, and engagement to accommodate the diverse needs and preferences of all learners. Providing multiple options for assignments involves offering students various ways to engage with the material, demonstrate their understanding, and express their learning.

When implementing UDL in your course, be sure to explain the rationale behind different assignment formats. This will make it clear to students that through engaging with various formats they get a variety of ways to practice their knowledge and can develop far stronger skills in order to achieve greater mastery. Also highlight the link between the different formats, for example, that all of these formats contribute to the main learning objectives of the course and that one format is not “easier” or “harder”. Lastly, provide them with necessary feedback to improve their learning irrespective of the format they choose. Below are some strategies you can use to designing assignments with UDL:

Provide Clear Instructions: Clearly articulate the assignment objectives, expectations, and grading criteria. Consider providing written, spoken, and visual instructions to accommodate different learning preferences. A format-agnostic rubric will help to organize this, and we have resources available for you .
Offer Multiple Options : Provide students with choices on how they can demonstrate their understanding of the material. This could include options such as written essays, oral presentations, multimedia projects, artistic creations, or hands-on demonstrations.
Use Varied Formats : Present assignment materials in multiple formats to accommodate different learning styles. Offer readings in text, audio, and video formats, and provide visual aids such as diagrams, charts, and infographics to support comprehension. Allow students to choose the format in which they present their work. Options could include written reports, oral presentations, multimedia presentations (i.e. videos, audios), posters or infographics, or digital portfolios. Some tools that can support this such as Immersive Reader , Panopto Videos , and the OneButton Studio .
Support Accessibility : Ensure that assignment materials are accessible to all students, including those with disabilities. Use accessible document formats , provide alternative text for images, and consider the needs of students who may require accommodations such as screen readers or captioning.
Offer Feedback Options : Provide students with options for receiving feedback on their assignments, such as written comments, audio recordings, or face-to-face meetings. Speedgrader is a great resource for written and audio comments. Tailor feedback to individual student needs and preferences. Offer students options for receiving feedback on their assignments. Allow them to choose their preferred method of feedback, such as written comments, audio recordings, video feedback, or face-to-face meetings.
Promote Reflection : Incorporate opportunities for students to reflect on their learning process and evaluate their own progress. Encourage metacognitive strategies such as goal setting, self-assessment, and reflection journals.

Each one of these strategies can become overwhelming, so start small. Don’t implement all of them at once; instead choose one strategy and implement it into 1 assignment or assessment. This is what Thomas Tobin calls the +1 method 1 : one activity that you already do plus one new, easy strategy. To read more about his strategy you can download his free pdf book UDL for FET Practitioners: Guidance for Implementing Universal Design for Learning .

Let’s take feedback options, for example. After using SpeedGrader to grade the students’ exams, many faculty and instructors typically offer some text feedback; however, you can easily implement a UDL strategy by also offering verbal feedback through the recorded audio button near the bottom of the feedback panel in SpeedGrader. You can make this a 1+1 goal for the next quarter, and as you become more proficient with this strategy you can slowly increase it to monthly and then weekly implementations.

By providing multiple options for UDL assignments, you can accommodate diverse learning styles, preferences, and abilities, and empower students to take ownership of their learning experiences.

Further Resources:

Review Academic Technology Solutions’ full list of Teaching Tools .
Learn About Universal Design for Learnin g from CAST.
Explore the University of Chicago’s Center for Digital Accessibility .
Request an instructional design consultation with LDT instructional designers.
Request digital media consultation and development services in support of teaching materials and the presentation of research.
Request custom workshops for departments or programs who want to tailor the content to their instructors or subject area.
Join us in office hours , virtual or hybrid, during which you can ask any questions you may have.
Join our online workshops on various topics related to teaching with technology.

1 Tobin, T. J. (2021). UDL for FET Practitioners. SOLAS. April 15, 2024, https://www.ahead.ie/udlforfet-guidance .

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Should you give job applicants an assignment during the interview process? Be thoughtful about the ask

Employers have to ask themselves whether they are willing to turn off a strong candidate by asking them to do additional work.

Hiring is a time-consuming and expensive endeavor. Companies need candidates who offer the right skills and experience for a given role, and who align with their organization’s vision and mission.

To find the best fit, many companies still lean on a strategy that continues to generate debate : the assignment. Some candidates believe their experience and interviews should give prospective employers enough information to determine whether they will fit the role. Employers have to ask themselves whether they are willing to turn off a strong candidate by asking them to do additional work.

Is the assignment valuable enough to the evaluation process that they cannot move someone forward without it? Sometimes it is—sometimes they help an employer decide between two strong candidates. And if they are necessary, how can employers make assignments fair and equitable for the candidate or candidates?

When done right, assignments help assess practical skills and problem-solving abilities, giving a clearer picture of a candidate beyond what their resume or interview reveals. But employers should be thoughtful about the ask. While it may make sense for roles that require specific technical expertise or creative thinking, it isn’t appropriate for all roles—so assignments should always be given with a clear reason for why they are needed.

Plus, they don’t just benefit the employer. For job seekers, an assignment during the interview process might also help them stand out from the competition. It can also offer a window into what their day-to-day in the new role might entail. Remember that the candidate should be interviewing the company, too. Having a test run of the work they’d be asked to do is a great way to see whether they believe the role is a fit.

However, there is a rift in how people perceive the assignment as part of the interview process. Workers today span many generations, each with unique values and expectations. Whereas older workers often prioritize stability and loyalty, younger millennials and Gen Zers are more focused on flexibility and work well-being, Indeed data shows .

This mindset impacts the amount of time and energy a candidate is willing to devote to each application. After multiple rounds of interviews and prep, taking on an in-depth assignment may feel like a bridge too far—especially if the expectations for the assignment are not clearly communicated ahead of time.

Some candidates are wary of providing free labor to a company that may use their work and not hire them. Hiring managers should be clear about how the work will be used. They may also consider offering compensation if the assignment requires more than a couple hours of someone’s time, or if they plan to use the work without hiring the candidate.

The key for early career candidates in particular is to ensure their time and efforts are respected. This is a win-win for employers: By providing clarity and transparency, they not only elicit the additional information they want from candidates, but they demonstrate that the organization is transparent and fair.

Equity is also imperative: Which candidates are being asked to complete assignments? Is the hiring team consistent in giving out assignments across ages, experience levels, and roles? There should always be a process and clear evaluation criteria in place to ensure fairness.

As we adapt to the rapidly evolving world of work, we must continue to think critically about each step in the hiring process. Candidate assignments can be a valuable tool, but only with appropriate respect for job seekers’ time and contributions.

With the right strategy, we can bridge the gap between generations in the workplace and build a hiring culture that values efficiency, talent, and integrity.

Eoin Driver is the global vice president of talent at Indeed.

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Outdated laws prevent gig economy workers from getting benefits. This pilot program shows the path forward
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The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune .

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Option Assignment: What It Is, How to Avoid It, and Examples
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Options Assignment & How To Avoid It
This would start the options assignment process. Exercise the option early: The last possibility would be to exercise the option before its expiration date. This, however, can only be done if the option is an American-style option. This would, once again, lead to an option assignment. So as an option seller, you only have to worry about the ...
How Option Assignment Works: Understanding Options Assignment
How to Avoid Option Assignment. While it may not be possible to avoid options assignment completely, there are several strategies that options traders can use to reduce the likelihood of being ...
Option Assignment: What It Is, How to Avoid It, and Examples
Any in-the-money call option that has less extrinsic value than the amount of the dividend, may be at risk of early assignment. This could be avoided by exiting the option prior to the ex-dividend date, or by rolling the option to an expiration or strike less likely to be assigned. Recap. Options assignment is a potential risk of options writing.
What is Option Assignment? How and Why Assignment Happens
An option must be closed before the end of the market day to avoid potential assignment. If a short option is not closed before the market closes at 4:00 pm EST, the option is subject to assignment. If assigned a call option, you must sell 100 shares per contract at the option's strike price. Conversely, if you are assigned a put option, you ...
Trading Options: Understanding Assignment
An option assignment represents the seller's obligation to fulfill the terms of the contract by either selling or buying the underlying security at the exercise price. This obligation is triggered when the buyer of an option contract exercises their right to buy or sell the underlying security. To ensure fairness in the distribution of American ...
Options Assignment Explained (2024): Complete Trader's Guide
Put Option Assignment: Assignment on a peddled put option necessitates the trader to buy the shares at the strike price. If this price overshadows the market rate, losses loom. For the Option Buyer: Call Option Play: Exercising a call lets the buyer snap up shares at the strike price.
The Risks of Options Assignment
An option gives the owner the right but not the obligation to buy or sell stock at a set price. An assignment forces the short options seller to take action. Here are the main actions that can result from an assignment notice: Short call assignment: The option seller must sell shares of the underlying stock at the strike price. Short put ...
How Option Assignment Works: Understanding Options Assignment
Options assignment can happen when the owner of an option exercises their right to buy or sell shares of stock or when options expire in the money (ITM). This process can be complex and involves ...
What Is Option Assignment & How Does It Work?
The option premium you collect is $10. After three weeks, the stock has jumped to $105, and the short calls are worth $6. You are alerted that you now face a call option assignment. While a small percentage of options contracts are exercised, you are among the few who are chosen to be assigned.
Understanding options assignment risk
Understanding assignment risk in Level 3 and 4 options strategies. With all options strategies that contain a short option position, an investor or trader needs to keep in mind the consequences of having that option assigned, either at expiration or early (i.e., prior to expiration). Remember that, in principle, with American-style options a ...
Options Exercise, Assignment, and More: A Beginner's Guide
Learn about options exercise and options assignment before taking a position, not afterward. This guide can help you navigate the dynamics of options expiration. So your trading account has gotten options approval, and you recently made that first trade—say, a long call in XYZ with a strike price of $105. Then expiration day approaches and ...
Dividends and Options Assignment Risk
Ways to avoid the risk of early assignment. If you are selling options (covered or uncovered), there is always the risk of being assigned if your trade moves against you. This risk is higher if the underlying security involved pays a dividend. However, there are ways to reduce the likelihood of being assigned early.
Options Basics: How the Option Assignment Process Works
The assignment process is done at random by the Options Clearing Corporation (OCC). A trader will become more acquainted with the operations of the OCC as he or she learns to trade options. When a ...
Option Assignment Process: Everything You Need to Know
Situation 1: Your option is In The Money (ITM) When an option is ITM, an option holder would stand to profit if they exercised the option. The deeper the option is ITM, the greater the profit for the option holder and therefore the higher risk they may exercise the option and you will be assigned. Situation 2: The option has an upcoming dividend.
Assignments in Options Trading
The Implications of Assignments for Options Traders. Understanding assignment in options trading is crucial as it comes with potential risks and rewards for both parties involved. For Option Sellers. Option sellers, or 'writers,' face the risk of unexpected assignments. The risk of being assigned early is especially present for options that ...
Option Assignment Risk Explained
To get the transcript, go to: https://www.rockwelltrading.com/coffee-with-markus/options-assignment-risk/When selling options, you always need to be aware of...
The Assignment Risks of Writing Call and Puts
Generally, writing options have two main benefits and purposes: (1) to capture the option premium time value as the option decays on the way to expiration; and (2) to reduce the cost of putting on a directional long call or put trade. Writing calls and puts and buying calls and puts in combinations allow you to trade many different market ...
How to Avoid an Option Assignment
Terry. How to Avoid an Option Assignment. Owning options is a little more complicated than owning stock. When an expiration date of options you have sold to someone else approaches, you need to compare the stock price to the strike price of the option you sold. If that option is in the money (i.e., if it is put, the stock is trading at a lower ...
Assignment Risk on 'Limited Risk' Options Spreads
To ensure fairness in the distribution of option assignments, the Options Clearing Corporation (OCC) utilizes a random procedure to assign exercise notices to clearing member accounts maintained with the OCC. ... To avoid the risk of an unwanted assignment, you can always close the spread prior to expiration, or at least close the short options ...
How To Avoid Option Assignment [Episode 504]
Click here to Subscribe - https://www.youtube.com/OptionAlpha?sub_confirmation=1Are you familiar with stock trading and the stock market but want to learn ho...
Eliminate Assignment and Exercise Risk with Index Options
Nasdaq-100 Index and ETF Listed Options. Source: Nasdaq. Trading options involve tracking a significant number of variables, including assignment and exercise risk. While both Index and ETF ...
What Is an Option Assignment?
It guarantees a fair process of option assignments, ensuring that the obligations in the contract are fulfilled. When an investor chooses to exercise a contract, the OCC randomly assigns the obligation to someone who sold the option being exercised. For example, if 100 people sold XYZ calls with a strike of $40, and one of those options gets ...
Understanding the Life Cycle of an Option Trade
Exercises Notices Generate Assignments When an option writer is assigned, they must fulfill the obligation associated with the option contract. To ensure fairness in the distribution of option assignments, OCC utilizes a random method to assign a clearing member firm with a corresponding short option position to the exercise of a long option ...
Angels to Acquire Former Top Prospect From Pirates In Trade
The Angels acquired the 24-year-old right-hander in a trade Thursday and will apparently welcome him to their major league pitching staff right away. Contreras was designated for assignment by the ...
Chicago Cubs Shake Up Bullpen After Making Trade With Seattle Mariners
The Chicago Cubs have gotten dominated during their first two games against the Atlanta Braves, getting outscored 9-0 and having already lost the series.. It was a measuring stick type of bout ...
Marine combat instructors can avoid recruiting or drill instructor duty
For the next special duty assignment season, fiscal year 2026, combat instructor may be an option for Marines who end up on the list "but will be subject to availability after the volunteer ...
Avoid These 5 Money Mistakes Americans Make
Here are five money mistakes Americans frequently make and some suggestions for how to get back on the right track. 1. Not building emergency savings. About half of Americans have less than $500 ...
PDF Trading Options: Understanding Assignment
An option assignment represents the seller's obligation to fulfill the terms of the contract by either selling or ... remaining position to avoid potential capital or margin implications resulting from the assignment. These actions may not be attractive and may result in a loss or
Implement Universal Design for Learning with Assignments
Providing multiple options for assignments involves offering students various ways to engage with the material, demonstrate their understanding, and express their learning. When implementing UDL in your course, be sure to explain the rationale behind different assignment formats. This will make it clear to students that through engaging with ...
Should you give job applicants assignment during interview process
For job seekers, an assignment during the interview process might also help them stand out from the competition. It can also offer a window into what their day-to-day in the new role might entail ...

What is Options Assignment & How to Avoid It

Video Breakdown of Options Assignment

What is Assignment?

Who Can Be Assigned?

Who Risks being Assigned Early?

How can you Minimize Assignment Risk?

FAQs about Assignment

1. What happens if your account does not have enough buying power to cover the assigned position?

2. How does assignment affect your P&L?

3. When an option holder exercises their option, how is the assignment partner chosen?

4. How does assignment work for index options?

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Understanding assignment risk in Level 3 and 4 options strategies

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Options Exercise, Assignment, and More: A Beginner's Guide

In the money or out of the money?

The decision tree: How to approach expiration

The bottom line on options expiration

Just getting started with options?

Today's Options Market Update

Weekly Trader's Outlook

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4 things you may not know about 529 plans

How dividends can increase options assignment risk

How dividends work

Avoiding or managing early assignment on covered calls

Avoiding or managing early assignment on calls not covered by shares

Other considerations and risks

Ways to avoid the risk of early assignment

Research options

More to explore

We're on our way, but not quite there yet

Option Assignment Process

When Assignment Occurs

When You Are Most At Risk

How You Can Avoid The Risk Of Being Assigned

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