Exercise vs Assignment in Options
Exercise lets you, as the option buyer, to your rights and (buy or sell) the stock for (less or more) and then flip it for profit.
Assignment, on the other hand, forces the option seller to meet obligations if someone exercises against them – selling the shares (covered call) or buying them (cash secured put) at the strike price.
The timing and randomness of these events can make trading options feel unpredictable.
Each side of the contract experiences it a bit differently.
Basic Definitions and How They Work
Exercise happens when you own an option and decide to use your rights. This is what buyers of options, both calls and puts can do.
You call the shots as the option holder.
For calls, exercising means you buy the stock at the strike price – for cheaper. For puts, you sell the stock at the strike price – for much more.
Assignment is what you face if you sold an option and the buyer decides to exercise.
This is what can happen to options sellers – in covered call or cash-secured put strategies.
You don’t get to pick when this happens.
Assigned on a call you sold? You must sell shares at the strike. Assigned on a put? You have to buy shares at the strike.
Exercise Rights and What They Mean
With American-style options, you can exercise whenever you want before expiration. European-style options only allow exercise at expiration.
Most traders who buy options don’t exercise their options. They usually sell them before expiration to get the remaining time value and skip the hassle of stock delivery.
Exercise makes sense if your option is in-the-money and you actually want the stock.
For calls, that’s when the stock price is higher than your strike price.
You’ll need enough cash to exercise call options. Buying 100 shares per contract can add up fast so that’s the main reason most just don’t exercise and rather sell their trade to someone else.
Many brokers will exercise in-the-money options for you at expiration. If you don’t want that, you can usually submit a “do not exercise” request.
Assignment Process and Randomness
Assignment can hit you anytime before expiration if your short option is in-the-money. You can’t really predict when it’ll happen.
The OCC uses a random process to assign exercises. It’s basically luck of the draw, not how long you’ve held your position.
Assignment notices show up after the market closes. Once you’re assigned, you have to meet the obligation—there’s no backing out.
Call assignment risks:
- You have to deliver 100 shares per contract
- If you don’t own shares, you’ll need to buy them at market price
- Naked calls can lead to big losses
Put assignment risks:
- You must buy 100 shares per contract
- You need enough cash for the purchase
- The stock might keep dropping after you’re assigned
Early assignment crops up a lot before dividend dates or when options barely have any time value left.
How Exercise Works for Calls and Puts
When you exercise a call option, you buy 100 shares at the strike price, no matter what the market is doing. Your account gets the shares and pays the set price.
How can this be good?
If you bought a call with a $50 strike and the stock’s at $55, you pay $5,000 for shares worth $5,500. That’s a $500 instant gain, minus what you paid for the option.
Exercising a put option means you sell 100 shares at the strike price. Your account delivers the shares and collects the cash.
Say you’ve got a put at $40 and the stock’s at $35. You get $4,000 for shares worth $3,500, so you’re up $500 minus the premium you paid.
Most brokers handle in-the-money exercises for you on expiration day. You don’t need to call or fill out forms.
Assignment Risk When You’re Short
Assignment happens if buyers exercise against your short options. You can’t control the timing during the contract’s life.
Short calls face assignment risk if the stock price jumps above your strike. You’ll have to sell 100 shares at the strike, even if the market price is higher.
If you sold a $60 call and the stock goes to $65, you’re forced to sell shares at $60.
Basically, you lose on that last $5.
If you don’t own them, you end up short at a bad price.
With put assignment, you must buy 100 shares at the strike. That can tie up a lot of your capital.
Assignment usually hits near expiration for in-the-money options, but it can happen early with dividends or deep in-the-money situations.
Early Assignment
Early assignment happens if someone exercises their option before it expires. This forces you, the option seller, to act sooner than you planned.
You can get assigned early at any time if you’ve sold American-style options. Most stock options in the U.S. are American-style, so buyers can exercise whenever they feel like it.
Early assignment is more likely in a few situations:
- Deep in-the-money options with almost no time value left
- Put options close to expiration with little time premium
- Call options just before dividend dates
- Multi-leg strategies like spreads or butterflies
If you’re assigned early, you have to:
- Buy shares if you sold a put
- Sell shares if you sold a call
This can really throw off your trading plan. Maybe you don’t have the cash ready, or you’re forced to sell shares you wanted to keep.
Dividend dates mean more risk for call assignment. Call buyers don’t get dividends, so they might exercise early to own the stock and grab the dividend.
Put options get assigned more often as expiration nears and time value drops. Put buyers might want their cash sooner.
You can’t predict early assignment. The best you can do is know the risks and have a plan just in case.
What happens at expiration
Assignment just happens when options expire in the money—there’s no way to dodge it.
You can’t pick whether it happens or not, which can be a bit nerve-wracking.
Call options that finish ITM mean you’ve got to sell 100 shares per contract at the strike price.
Put options that expire ITM require you to buy 100 shares per contract at the strike price.
| Option Type | Your Obligation | Action Required |
| Short Call | Sell shares at strike price | Deliver 100 shares per contract |
| Short Put | Buy shares at strike price | Purchase 100 shares per contract |
If an option is even a penny in the money, brokers will usually exercise it automatically.
That means assignment lands in your lap if you sold the option.
Sometimes you won’t know about assignment until the morning after expiration.
The broker’s clearing system handles everything overnight, so it’s a bit of a waiting game.
Cash requirements get real here.
If you get assigned on a put, you need enough cash to buy those shares.
If it’s a call and you don’t own the stock, you’ll have to scramble to buy shares so you can deliver them.
If you can’t cover it, your broker might sell off some of your other positions to make up the difference.
That can lead to extra trading fees and, honestly, some unwanted losses.
Once an assignment happens, there’s no way to back out.
You’ve got to settle up by buying or selling the shares, whether you like it or not.
