Assignment

Assignment occurs when an option buyer exercises their rights, forcing the option seller to fulfill their obligation – buying shares for put sellers or selling shares for call sellers. It’s not a failure or mistake; it’s simply part of the contract you agreed to when collecting premium. For put sellers, assignment means buying 100 shares at the strike price. For call sellers, it means selling 100 shares at the strike price. Understanding assignment mechanics, probabilities, and management strategies transforms it from a feared outcome to just another step in the income generation process. The key is being prepared both mentally and financially for assignment before it happens.

How Assignment Works

Assignment is a mechanical process:

  1. Option buyer decides to exercise (usually at expiration if ITM)
  2. OCC randomly assigns sellers (you don’t know when)
  3. Broker notifies you (usually by Saturday morning)
  4. Shares appear/disappear (in your account Monday)
  5. Cash is debited/credited (at strike price × 100)

You have no control over assignment timing – only preparation.

Assignment Example – Put

Sold $50 put for $0.50 premium:

  • Stock closes at $48 on Friday
  • Assigned Saturday morning
  • Monday: Own 100 shares
  • Cost: $5,000 debit
  • Effective basis: $49.50 (including premium)

Assignment Example – Call

Sold $52 call for $0.40 on shares owned at $48:

  • Stock closes at $54 on Friday
  • Assigned Saturday morning
  • Monday: Shares gone
  • Receive: $5,200 credit
  • Total profit: $440 (gain + premium)

Assignment Probability

Not all ITM options get assigned:

Deep ITM: Nearly 100% assignment

  • More than $1 ITM usually assigned
  • Buyers capture intrinsic value
  • Little reason not to exercise

Barely ITM: Variable assignment

  • $0.01-0.50 ITM less certain
  • After-hours movement matters
  • Pin risk exists

OTM: Zero assignment risk

  • No economic benefit to exercise
  • Expires worthless
  • Keep full premium

Delta as Assignment Predictor

This helps size positions appropriately.

Early Assignment

American options can be assigned before expiration:

Common Early Assignment Triggers:

  • Deep ITM with no time value
  • Dividend capture (calls)
  • Hard-to-borrow stocks
  • Major volatility events

Dividend Assignment Example:

  • Own shares at $48
  • Sold $50 call for $0.40
  • Stock rises to $53
  • $0.50 dividend announced
  • Call buyer exercises early for dividend
  • You keep premium but lose dividend

Managing Assignment Risk

Preparation prevents panic:

Before Selling Options

Capital Planning:

  • Have cash for put assignment
  • Own shares for covered calls
  • Never use full buying power
  • Reserve adjustment funds

Strike Selection:

  • Only sell puts at prices you’d buy
  • Only sell calls above cost basis
  • Consider total position size
  • Factor in sector exposure

Approaching Expiration

Wednesday Check: Assess all positions

  • ITM positions need attention
  • Calculate assignment impact
  • Decide: roll, close, or accept

Thursday Decision: Final adjustments

  • Last chance for cheap rolls
  • Close if assignment unwanted
  • Prepare for likely assignments

Friday Management: Monitor closely

  • Watch pin risk positions
  • No hoping – take action
  • After-hours movement matters

After Assignment

Assignment isn’t the end – it’s a transition:

Put Assignment Response

Now own 100 shares at strike:

  1. Sell covered calls immediately
    • Continue income generation
    • Target above cost basis
    • Weekly or monthly options
  2. Exit if thesis changed
    • Sell shares Monday
    • Take loss, move on
    • Don’t marry positions
  3. Average down if confident
    • Sell another put
    • Lower average cost
    • Size appropriately

Call Assignment Response

Cash from sold shares:

  1. Sell puts to re-enter
    • Same stock if bullish
    • Different stock if not
    • Continue the wheel
  2. Take break if uncertain
    • Reassess strategy
    • Find better opportunities
    • Don’t force trades

Assignment Fees and Logistics

Hidden costs to consider:

Assignment Fees: $0-20 per assignment

  • Some brokers charge
  • Factor into calculations
  • May affect small positions

Settlement Timing:

  • Options settle T+1
  • Stock settles T+2
  • Cash/margin implications
  • Plan accordingly

Tax Implications:

  • Put assignment starts holding period
  • Call assignment triggers gain/loss
  • Wash sale rules apply
  • Track for taxes

The Assignment Mindset

Successful traders embrace assignment:

It’s Not Failure: You agreed to this price It’s Planned: Part of your strategy It’s Profitable: You kept premium It’s Temporary: Can exit anytime

Psychological Preparation

Before selling any option, ask:

  • “Am I happy owning here?” (puts)
  • “Am I happy selling here?” (calls)
  • “Can I handle the capital requirement?”
  • “What’s my post-assignment plan?”

If any answer is no, don’t sell the option.

Assignment in The Wheel Strategy

Assignment drives the wheel:

  1. Sell puts → Collect premium
  2. Get assigned → Own shares at discount
  3. Sell calls → Collect more premium
  4. Get assigned → Sell shares at profit
  5. Repeat → Compound returns

Assignment is a feature, not a bug.

Avoiding Unwanted Assignment

When assignment must be avoided:

Rolling Strategy:

  • Roll before expiration week
  • Target credit rolls
  • Adjust strikes if needed
  • Buy time for recovery

Close at Loss:

  • Sometimes cheaper than assignment
  • Preserves capital
  • Avoids margin issues
  • Clean slate

Never: Let hope drive decisions Always: Have a plan before selling

Common Assignment Mistakes

Surprise: Not monitoring positions Panic: Emotional response to assignment Overleverage: Too many obligations No Plan: Unsure what to do with shares

Assignment Best Practices

Build assignment into your system:

  1. Size for Assignment: Never sell more than you can handle
  2. Track Obligations: Know total potential assignment
  3. Maintain Reserves: Keep dry powder
  4. Have Exit Plans: Know your response
  5. Stay Mechanical: Remove emotion

Weekly Routine

  • Monday: Check weekend assignments
  • Wednesday: Assess assignment risk
  • Friday: Manage expiring positions
  • Weekend: Plan for assignments

Key Takeaways

Assignment:

  • Natural part of option selling
  • Happens when ITM at expiration
  • Can occur early (rare)
  • Not a failure – it’s planned
  • Manageable with preparation
  • Continues income generation

Assignment is simply the fulfillment of the contract you created when selling options. Embrace it as part of your income strategy rather than fearing it. With proper position sizing, strike selection, and post-assignment planning, assignment becomes just another step in generating consistent returns rather than a dreaded outcome.