What is assignment?
Assignment happens when the seller (writer) of an option is forced to fulfill the contract because the buyer exercised their right. The seller does not choose when this happens. The Options Clearing Corporation (OCC) assigns short positions randomly among brokers, and brokers assign clients from there.
What assignment looks like
- Short call assigned: you sell 100 shares at the strike. If you did not already own the shares (naked call), your broker buys them at market and hands them over, often at a loss.
- Short put assigned: you buy 100 shares at the strike. If you did not have the cash, your broker uses margin, which can trigger a margin call.
When it happens
Most assignment happens at expiration, when in-the-money options are exercised automatically. Early assignment can happen any time the option is ITM, but it is rare except right before a dividend (for short calls) or on deep-ITM options.
How to avoid surprise assignment
If you sell options, close short positions before expiration if they are ITM. Keep enough cash or margin buying power to absorb worst-case assignment. Know whether your short calls are covered or naked.