What Is Assignment in Options? | How Do Options Work?

Assignment is what happens to an option writer when a holder exercises: the writer is formally notified that they must fulfil the contract. An assigned call writer must sell the underlying shares at the strike price; an assigned put writer must buy them at the strike price.

In short: exercise is the holder’s choice; assignment is the writer’s obligation that follows. In the US, the Options Clearing Corporation assigns exercises to brokers at random, and brokers then allocate them to customers by a random or first-in, first-out method they must disclose. Anyone short an American-style option can be assigned at any time before expiration.

How assignment is allocated

When a holder exercises, the exercise does not go to the person who originally wrote that particular contract. Instead:

The holder’s broker sends the exercise to the clearing house.
OCC (in the US) assigns it at random to a clearing member firm with a short position in that series.
That firm allocates it to one of its customers who is short. FINRA Rule 2360 requires the method to be “first in-first out” or a random selection method approved by FINRA, and the firm must explain its method to customers in writing.

In Canada, the Canadian Derivatives Clearing Corporation plays the clearing role for Montreal Exchange options.

What assignment looks like in your account

Maple Widgets Inc. (a hypothetical company) trades at $56.

Short one $50 call, assigned. You must deliver 100 shares and receive $50 x 100 = $5,000. If you own the shares (a covered call), they leave your account. If not, you end up short 100 shares worth $5,600, a $600 obligation above the strike, offset by whatever premium you collected.
Short one $55 put, assigned with the stock at $52. You must buy 100 shares for $5,500, shares that are worth $5,200 in the market.

The premium you received when you wrote the option is yours either way. How it is taxed after assignment is covered in how options are taxed in the US.

When it happens

At expiration. In the US, OCC’s exercise-by-exception process automatically exercises expiring equity options that are in the money by $0.01 or more, unless the holder instructs otherwise. If your short option finishes in the money, expect assignment. The details are in what happens at expiration.

Early. Holders of American-style options can exercise any business day, so writers can be assigned early. It is most likely when the option is deep in the money with little time value left, and for short calls, just before an ex-dividend date. See assignment risk and early exercise.

Never, for some products. European-style options, such as most broad index options, can only be exercised at expiration, so they cannot be assigned early.

Why it surprises people

A spread’s short leg can be assigned while the long leg stays open, leaving a stock position you did not plan for.
Assignment notices often arrive overnight, after the market has closed.
A short option that was out of the money at the 4:00 p.m. close can still be exercised if the stock moves after hours, because US holders have until 5:30 p.m. ET to submit exercise decisions.