Options Assignment Explained
What happens when options expire? Exercise vs assignment, automatic exercise, and what you need to know as a trader.
Exercise (Exercise)
As a BUYER of an option, you have the RIGHT to exercise your option.
- ✓Call: Buy shares at strike
- ✓Put: Sell shares at strike
- ✓YOU decide if and when
Assignment (Assignment)
As a SELLER of an option, you have the OBLIGATION when someone exercises.
- !Short Call: Deliver (sell) shares
- !Short Put: Take (buy) shares
- !SOMEONE ELSE decides
Practical Scenarios
Scenario 1: Long Call - In The Money (ITM)
Automatic ExerciseSetup
You bought a €100 call. At expiration, stock is at €110.
What Happens
Option is €10 in the money. If you do nothing, it will be automatically exercised.
Result
You buy 100 shares at €100 (total cost €10,000). These are immediately worth €11,000 = €1,000 profit (minus premium paid).
Scenario 2: Long Call - Out of The Money (OTM)
Worthless ExpirationSetup
You bought a €100 call. At expiration, stock is at €95.
What Happens
Option is €5 out of the money. Why would you pay €100 when market price is €95?
Result
Option expires worthless. You lose the premium paid (100% loss of premium).
Scenario 3: Short Put - Assignment
AssignmentSetup
You SOLD a €50 put. At expiration, stock is at €45.
What Happens
Put is €5 ITM. The buyer exercises. You get ASSIGNED.
Result
You MUST buy 100 shares at €50 (€5,000 total). Shares are only worth €4,500. Loss: €500 (partially offset by premium received).
Scenario 4: Covered Call - Shares Called Away
Shares Called AwaySetup
You own 100 shares at €100. You sold a €110 call. Stock rises to €120.
What Happens
Call is €10 ITM. The buyer exercises. Your shares get "called away".
Result
You sell your 100 shares at €110 (not €120). Profit: €1,000 + premium. You miss €1,000 additional profit.
Timeline: Expiration Week
1-2 Weeks Before Expiration
Review Your Position
Decide: Close, roll, or hold to expiration?
Expiration Friday 4:00 PM ET
Market Close
Last chance to sell the option in the market.
Expiration Friday 5:30 PM ET
Exercise Cutoff
Last chance to contact your broker regarding exercise decisions.
Saturday Morning
Assignment Notification
You learn if you were assigned (for short positions).
Monday
Settlement
Shares appear in your account (or are removed).
Pro Tips for Expiration
Sell Instead of Exercise
Sell your option in the market instead of exercising. You capture remaining time value AND save transaction costs on shares.
Dividend Risk
Short calls before ex-dividend have high early assignment risk. Close in time or roll the position.
Keep Capital Ready
For short puts: Always keep enough capital for potential assignment. Strike × 100 = capital needed.
Roll in Time
If you want to avoid assignment, roll your position 1-2 weeks before expiration to the next month.
Frequently Asked Questions
What is the difference between Exercise and Assignment?
Exercise: YOU decide to use your right (you are the buyer). Assignment: You MUST fulfill your obligation because someone else exercised (you are the seller). Buyers have rights, sellers have obligations.
Can I get assigned before expiration?
Yes! American-style options (most stock options) can be exercised anytime. Early assignment happens more often with: 1) Deep ITM options, 2) Just before dividend payment, 3) Close to expiration. European options can only be exercised at expiration.
What if I don't have enough money for assignment?
This is serious! If you sold a put and get assigned, you must buy the shares. Without sufficient capital, your broker may: 1) Liquidate the position immediately, 2) Issue a margin call, 3) Put your account in a deficit. NEVER sell options without sufficient capital!
Do I have to exercise my ITM option?
No! You have 3 choices: 1) Exercise (buy/sell shares), 2) Sell (close the option in market - usually better!), 3) Let expire (only makes sense if nearly ATM). TIP: SELLING is usually better than exercising because you capture remaining time value.
What is Auto-Exercise?
Most brokers automatically exercise ITM options that are at least €0.01 in the money at expiration (OCC rule). You can override this by contacting your broker before cutoff. Some brokers have a "Do Not Exercise" option in their platform.
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