Glossary
Assignment
The notice that an option seller must fulfill the contract: deliver shares on a short call or buy shares on a short put.
On this page
Assignment is what happens to an option seller when a buyer exercises: the seller receives notice that they must perform their side of the contract. A short call that is assigned must deliver 100 shares per contract at the strike price; a short put that is assigned must buy 100 shares per contract at the strike. Anyone who writes options, including covered calls and cash-secured puts, needs to understand it because it can arrive without warning.
How it works
In the US, every listed option trade clears through the Options Clearing Corporation (OCC). When a holder exercises, the OCC assigns the obligation at random to a clearing member firm with a matching short position, and that firm allocates it to one of its customers, either randomly or first-in, first-out, according to its disclosed method. Share delivery then settles on the next business day (T+1).
At expiration, the OCC's exercise-by-exception process automatically exercises equity options that are in the money by $0.01 or more unless the holder instructs otherwise. So a short option that finishes even slightly in the money should be expected to be assigned.
Early assignment
Because US stock options are American style, a short option can be assigned on any business day before expiration. It is most likely when the option is deep in the money with little time value left, and for short calls the night before an ex-dividend date. Assignment of one leg of a spread can leave a trader temporarily holding shares or a short stock position.