Assignment
The process by which an option seller is required to fulfil their obligation — delivering or buying the underlying — when the buyer exercises.
Assignment occurs when an option holder exercises their contract and the Options Clearing Corporation (OCC) randomly assigns the obligation to a counterparty who is short that option. The assigned seller must buy (if short a put) or sell (if short a call) the underlying at the strike price.
Early assignment risk is real for American-style options that are in the money, particularly calls on dividend-paying stocks the day before ex-dividend. Traders short calls should monitor ex-div dates carefully.
Example
You sold a MSFT $420 put. MSFT drops to $410 and the put holder exercises. You are assigned — forced to buy 100 shares at $420, a $1,000 loss relative to market value.
Related Terms
American vs European Option
Exercise style: American options can be exercised any time before expiry (most single-stock options); European options only at expiry (most cash-settled index options like SPX).
IntermediateCash-Secured Put
Selling a put while setting aside enough cash to buy the shares if assigned — collecting premium with the willingness to own the stock at the strike.
IntermediateCovered Call
An options strategy where the holder of a long stock position sells a call option against it, generating income at the cost of capping upside.
IntermediateExercise
The act of an option holder invoking their right to buy (call) or sell (put) the underlying at the strike price.
IntermediateOptions Contract
A contract giving the buyer the right — but not the obligation — to buy or sell an underlying asset at a set price before or on expiration.
Beginner